Litecoin Crash; Is Litecoin Dead?
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Since 2011, Litecoin, commonly referred to as digital silver, has consistently gained the attention of many crypto investors. Currently trading at approximately $183 (at the time of writing this article), Litecoin has seen a wavering trend in its prices. For crypto investors, acute flickering trends in a given cryptocurrency means fear, uncertainty, and doubt (FUD), it practically sends many stakeholders into a tizzy.
We at aBitGreedy have made it our business to comprehensively investigate and find out whether Litecoin is crushing tomorrow, has already crashed, or whether it’s just a move by a few parties to instigate fear on Litecoins trading price.
What technical failures can cause a crash in Litecoin?
The blockchain, a technology which runs many cryptocurrencies including Litecoin, is the most crucial component in securing the future of the digital currency it supports. A failure in Litecoin’s technology means a failure in the currency’s backbone, it practically brings it to a halt. Some of the possible causes of a flash crash due to technical failures include;
- Mining network failure; Mining is the process by which transactions are verified in a cryptocurrency’s blockchain, Litecoin’s blockchain in this regard. Mining is carried out by entities referred to as miners. If the miners stop verifying Litecoin transactions (especially those mining monopolies such as China), the network consequently becomes insecure. In fact, if we go by these speculations, it means that Litecoin transactions can no longer be verified.
- Unprofitable rewards for miners verifying transactions; Whenever a miner verifies a transaction, there is an incentive given in return in form of cryptocurrency (block rewards). A general observation of the blocks halving overtime has been made. When the block rewards become unprofitable, miners will start receiving rewards that Litecoin users put as transaction fees. It is, however, unclear how high those fees can be, as they can be major bottlenecks especially for small transactions as has been witnessed in the case of Bitcoins.
- The quantum computing threat; Quantum computing could someday outdo the processing power of today’s computers, something which is giving cryptocurrency users worries. According to cryptographers, their main concerns with quantum computing is that it could break RSA encryption, a tool used to secure transmissions on the internet, and digital signature used in cryptocurrencies such as Litecoin for this matter. Consequently, this means that hackers or malicious users would forge transactions and steal coins. Such price and market manipulations destroy the confidence of users.
- Occurrences of soft fork technicalities; A softfork is a change to a blockchain software protocol, whereby rulesets enforced by full nodes are restricted and an upgrade is made to enforce soft fork rules. A good example is a softfork that imposes new block size limits from 2MB to 1MB, even though 2MB block sizes were previously valid, they will be considered obsolete by full nodes that upgrade to support the new soft fork rule. Soft forks are backward compatible, meaning that they can still operate with the legacy protocol.
- A consensus is one of the key factors that can contribute to a soft fork in Litecoin. This is when a majority agree to change some rules governing the running of the blockchain.
- Scaling issues are also a major contributor to the rise of soft forks.
- Occurrences of hard fork technicalities; A hardfork is more of an opposite of softfork, it is an entire change to the protocol that makes previously valid/invalid transactions/blocks either invalid/valid respectively. It is a permanent divergence to the previous blockchain, hence requires all nodes/users to upgrade to the latest version of the protocol software.
- Security risks are a major cause of hard forks. Other causes include consensus and scaling issues.
- Depending on how a soft fork or hard fork is carried out in a given cryptocurrency’s network, they can either strengthen or weaken the network. The latter occurs when the majority are not in support of either the softfork or the hardfork.
- Hackers attack hence blockchain failure; In May 2016, hackers attacked the Decentralized Autonomous Organization (DAO) blowing up around $60 million worth of value in digital contracts. This critical hacking incident led to the forking of Ethereum blockchain into Ethereum and Ethereum classic. Such incidences raise doubt on the security of blockchains, and can hardly hit Litecoin depend on how the developers respond in case of such unfortunate occurrences. Where blockchain failure is the result of a hacker attack, the value of the affected cryptocurrency will definitely surge and even diminish to nothing under worst circumstances.
Is the Litecoin bubble bursting? What are some of the trading issues that lead to a bubble burst?
In the economic world, a bubble is a scenario whereby there are rapid escalations in the value of an asset followed by a down-trending surge in the prices. Investor behaviors are what drive bubbles in the economic world. When investors are no longer willing to buy assets at their high selling rates, a huge sell-off of the assets is likely to occur, causing the bubble to burst.
A good example of a bubble burst took place in the 1990s and 2000s, the dotcom boom. Investors poured in their stakes in tech stocks that traded at high prices with the belief of subsequently selling them at higher prices. When confidence was lost, what followed was a crash. A similar case can affect cryptocurrencies, hence, we will be unleashing the different scenarios of Litecoin’s bubble bursting as a result of trading issues.
Litecoin’s trading bot malware attacks
Trading Bots are software programs that employ a various set of rules to recognize market trends and execute a trade. Trading bots first appeared on equity, commodity, and fiat currencies markets. Later on, they were quickly embraced in the crypto market.
Since they are engineered by humans, just like any other software programmes, Litecoin trading bots are prone to third-party manipulations. If they trading bots are outweighed by malware attacks from hackers or other government institutions that want to brush off the use of Litecoins, the market trends could be altered hence a bubble burst.
Big players dumping big amounts
The dotcom boom is a perfect historical data indicating how big investors dumped their shares. The same case could hit Litecoins or any other cryptocurrencies; when confidence is lost in the currency, big players can decide to sell their holdings at throw-away rates. The digital currency will fall in value and its price will fall.
Most cryptocurrencies communities have been raising debates on what will happen in the event that big miners collude with traders to drive the cryptocurrency trends in a manner that is beneficial to them. For example, they could link up to make soft forks updates that serve to their advantage. If such cooperations come to light, then a bubble burst might be the next event in place.
Speculative bubble burst (Keynes)
Speculative bubble burst arises when investors believe that there will be a constant upward trend in the prices of their shares. As predicted, the constant growth continues to the point which investors realize how too far the exchange rates have grown. At this point, the buyers outnumber the sellers and the bubble is only completed when the prices fall back. It is during the period of a steep decline that a burst is realized.
In the event that Litecoin faces a speculative bubble burst, most short-term investors will likely be shaken off the market. The market will then regain momentum based on fundamental financial metrics rather than psychological expectations.
The short squeeze aftermath
A short is when someone borrows money such as Litecoin with the hope that its prices will surge over time. If the prices of Litecoin falls as he or she had predicted, the Litecoins borrowed will be paid back with less money and the remainder kept as profit. Trouble arises when the prices of Litecoins keep ballooning, the borrower will have to pay back more than he or she owned thereby running at a loss.
Traders who borrow money including digital currencies such as Litecoin with the aim of shorting them are commonly referred to as hedge funds. If their deals go soar, they get kicked off the market, which can negatively impact a given cryptocurrency’s exchange rate and future continuity if they happen to form a bulk of the currency’s users.
Long squeeze aftermath
A long squeeze is a sudden drop in the price of a given cryptocurrency, that causes long holders of a given cryptocurrency to sell off their shares as a result of panic that they might run into heavy losses if the shares prices further plunge downwards. Long squeeze is very rare but when they occur, they can reduce the value of a given cryptocurrency to nearly zero.
A flash crash is a quick drop and recovery in the prices of a given cryptocurrency. During a flash crash, thousands of traders can lose billions of shillings. Sometime in late 2017, Litecoin suffered a flash crash from $100 after its value declined sharped against the USD. The currency then traded as low as below $80 but made a comeback to $102.
Governments impose heavy regulations on Litecoin; another reason why Litecoin crashed
The set regulations against cryptocurrencies such as Litecoins by governments is a major determinant of whether the digital currencies will grow or decline in value. Recently, there were fears and unconfirmed claims of China banning cryptocurrencies and exchanges at least once or twice every year. If such a sharp ax was to fall on Litecoins, it would mean that a large monopoly of miners or users will be affected hence a noticeable downward trend in its exchange charts. Litecoin is largely dominated by Chinese investors.
The most recent collapse in the price of Litecoin was witnessed in January 2018 when investors got wind of South Korea’s cryptocurrency trading ban. France is also another country that has been mentioned among those looking forward to implementing strong stance against cryptocurrencies, whose values have been consistently rising.
Taxes imposed on digital assets such as cryptocurrencies
Lately, crypto investors have been bracing themselves for tough times ahead since most governments are coming up with rules that will make it compulsory for them to remit taxes. A good example is in the USA where cryptocurrencies are considered as ‘digital assets’ but not currencies such as the commonly used fiat currencies. When it hit 31st December 2017, the USA investors were not celebrating the new year as the new tax laws came into effect requiring every single cryptocurrency exchange to be taxable. Looking into the taxation laws, coins held for less than a year are taxed as regular income at rates between 10%-37%. On the other hand, coins held for more than a year are regarded as capital gains and subject to tax rates as high as 25%.
Currently, cryptocurrency investors in countries such as USA face transaction fees, income taxes, capital gain taxes, and taxes when they exchange their cryptocurrencies for other digital currencies or fiat currencies. Such heavy incentives could discourage investors from venturing into Litecoin among other digital currencies if deemed expensive, what will follow is a price drop in digital currencies.
Enforced money monopoly
Governments in the world are for the first time disappointed that Hayek’s envision of private currencies (decentralized currencies) is coming to fruition. The monopoly of fiat currencies is being challenged as many digital currencies such as Litecoins gain a competitive edge over them.
According to British-American technocrat (computer programmer and technology pioneer) John McFree, governments are trying to diminish the use of cryptocurrencies because of the danger it poses to them. If cryptocurrencies take over the financial world, then they will control governments with their principles of transparency, a virtue lacking in most governments. If the level of regulations imposed on digital currencies by governments come to a success, then most cryptocurrencies such as Litecoins could highly diminish in value compared to fiat currencies, making them powerless.
Tracking of blockchain transactions
A huge advantage that comes with most cryptocurrencies including Litecoins is the various levels of privacy in transactions they offer to users. Already, some countries such as the USA are getting into partnerships with entities (IRS and Chainanalysis) that will obtain information from cryptocurrencies network and link them up with real-world entities. Such identifiers cause unrest among users who can, in turn, abandon their investments thereby diluting the demand for cryptocurrencies.
The taxation menace; crypto investors are not happy
Unlike in the recent years when cryptocurrencies such as Litecoin hadn’t gained hold of the financial world, many governments are currently regarding them as digital assets, hence taxable. Some of the various taxation issues currently facing Litecoin among other digital currencies that could lead to their crush include;
Capital gain taxes
A good example is in the USA where capital gain taxes became effective from the last day of 2017. The capital gains in the USA are as high as 25%. Other countries could adopt a similar trend.
Digital currencies such as Litecoins are treated as digital assets by many governments, this means that transferring the ‘digital assets’ from one party to another will now be subject to taxation.
Enforcement of VAT taxes and other sales taxes on Litecoins
In the event that Litecoins and other digital currencies are exchanged at a profit, the proceeds will be subject to taxes as the currencies are now treated as digital assets by most governments. These type of taxes cover up to simple Litecoin exchanges for other currencies.
The implication of the different types of taxes on Litecoins and other virtual currencies is that they could make Litecoin investors gain low outputs compared to their inputs in the crypto market. This will discourage investments on the cryptocurrencies and make the venture even worthless under extreme circumstances.
Competition from other cryptocurrencies and flippening; another possible cause of the prices of Litecoins going down
- During its launch in 2011, Litecoin was regarded as ‘digital silver’ for such a long time, in fact, Litecoin emerged as the second largest cryptocurrency after Bitcoin, measured by market capitalization. Additionally, the cryptocurrency experienced a wide adaptation by many merchants. After the launch of Ethereum in 2015, Litecoin’s popularity quickly faded away.
Currently, Litecoin ranks as the 7th cryptocurrency based on capitalization, coming after Bitcoin, Ethereum, Ripple, Bitcoin Cash, Cardano, and Stellar respectively. The reason as to why Litecoin has lost popularity is probably because its forerunners are offering better solutions to users that it can currently meet. Its prices will go up or down depending on how competent it emerges against its rivals.
- Compared to Bitcoin, Litecoin has faster transaction times and lower transaction fees. Many potential investors believe that despite its current position, there is a possibility that it will eventually rise and give Bitcoin a stiff competition.
- Compared to Ethereum which is currently gaining a steep competitive edge against Bitcoin, the former has drawn the interests of many financial institutions and corporations. Ethereum offers its users the liberty to execute smart contracts, something deemed to streamline the business process in the future. Unfortunately, Litecoin is much slower in processing transaction compared to Ethereum, it also doesn’t offer a platform that facilitates the execution of smart contracts. It will be interesting to watch how the two rivals compete in the near future.
- Another issue is the introduction of a new advanced blockchain to run rival cryptocurrencies network, deeming Litecoin’s blockchain obsolete in terms of what it offers which could further reduce its popularity and influence its price decrease. A good example is the Zen Network, which is a parallel blockchain to Bitcoin and has extended smart contracting capabilities to Bitcoin’s network.
- Then there is the possibility of a flippening, which means any of the altcoins taking over Bitcoin’s first position. Currently, most stakeholders are speculating an Ethereum flippening, which means that if the predictions come to pass, Ethereum will be a more valuable currency than Bitcoin, Litecoin, and hundreds of other cryptocurrencies.
- And if you have come across the lightning network, which is aimed at making Bitcoin’s transactions faster and cheaper, the technology could solve the very same reasons as to why Litecoin was forked out of the number one cryptocurrency. And if it succeeds in making Bitcoin’s transactions faster and cheaper than Litecoin’s, then the latter would have failed to meet the very objectives for which it was established.
- Litecoin having been forked out of Bitcoin left behind diehard users of Bitcoins. To save the number one cryptocurrency from criticism as a result of its failures, the Bitcoin community can plot a scheme to spread fake news against the forked Litecoin currency. This is just but a speculation.
- Then there are those investors who have held to their Bitcoins believing that there are better solutions to the cryptocurrency’s scaling problems in the near future rather than having to switch to Litecoin as a solution. Think about it.
Other causes as to why the price of Litecoin is going down
Unlike the stoke exchange market, the cryptocurrency market is such an unregulated one. What could lead to thousands of years of jail term in the stoke market goes unpunished in cryptocurrency trade. This makes it possible for malicious big players to manipulate the market in favor of their interests. If the price decrease is best for them, they can twist the market in that direction if at all they possess the strengths to do so.
Amateur investors panic
Investors who would like to make quick profits are common everywhere, the cryptocurrency world is no different since many of them are in existence. If amateur investors comprise a good chunk of Litecoin’s shareholders, then they will always go into a frenzy when the price starts falling. This combined with market manipulations could drive a further decline in prices.
Regulations and bans on ICOs (Initial Coin Offerings)
The US Securities and Exchange Commision warned that the will be closely monitoring ICOs, meanwhile, China banned ICOs. With ICOs being the backbone behind many startup cryptocurrencies projects, the strict regulations or bans currently being imposed on them by most governments is sending chills down the cryptocurrency communities. Uncertainty is looming over the prevailing fate of other popular cryptocurrencies such as Litecoin, Bitcoin, and Ethereum, causing their values to dip.
Crash in the value of other cryptocurrencies
If the value of top cryptocurrencies such as Bitcoin and Ethereum fall, there is a possible likelihood that Litecoins and other altcoins will also suffer the same negative effect. This is because a decline in value of top cryptocurrencies generally drives panic among many stakeholders in the crypto community.
Disruption in mining or trading activities
There are many occurrences that can likely interfere with Litecoin mining or trading activities. For example, continental power outrages will basically bring mining and trading of any cryptocurrencies including Litecoins to a halt.
Litecoin is gaining market stability
There is a general assumption that a constantly fluctuating digital currency is gaining market stability. This could be what is affecting Litecoin.
So, a Litecoin crash is imminent?
The conclusion that Litecoin is crashing cannot be arrived at superficially, there are so many factors mentioned above that could be causing the digital currency to constantly get cheaper over time. It is a combined analysis of these factors that can yield a comprehensive deduction as to whether Litecoin is experiencing a crash or not.
Despite the volatile nature of the cryptocurrency market, you can still gain despite the market surge. What you need is a comprehensive understanding of the past, current, and future market trends.
Learn these trends by looking into our other posts comprehensively covering everything you need to know about the cryptocurrency domain. Thanks for being onboard.