With cryptocurrencies continuing their wild ride, investors should stay away from Litecoin (CCC:LTC-USD) for the time being.
Like all cryptocurrencies, LTC has been experiencing extreme volatility.
Between May 9 and 23, Litecoin’s price fell 71%, from a high of $408.57 to a low of $118.66. The digital coin’s price has since rebounded and is today trading at right around $199.
On May 26 alone, Litecoin’s price rallied 10% higher. The big swings have left many investors holding on for dear life. A lot of people have thrown in the towel with Litecoin and cryptocurrencies in general.
The extreme volatility undercuts the fact that LTC is one of the better cryptocurrencies available today and a digital coin that might actually have staying power.
LTC is one of the oldest “altcoins,” or alternative cryptocurrencies that are distinct from Bitcoin (CCC:BTC-USD), which remains the largest digital coin on the market today.
Founded in 2011, Litecoin is nearly identical to Bitcoin from a technical perspective. It is a peer-to-peer cryptocurrency that was created using open-source software. The main difference between Litecoin and Bitcoin is that Litecoin can be processed much faster than Bitcoin, making it a preferred cryptocurrency among people who favor speed of transactions.
Owing to its speed (Litecoin transactions are, on average, four times faster than Bitcoin), some cryptocurrency experts forecast that Litecoin will eventually replace Bitcoin as a digital asset and source of funds.
At the end of March, fintech and payments company PayPal (NASDAQ:PYPL) announced that it will accept Litecoin as a form of payment. This announcement by PayPal provided a boost to Litecoin and helped spark the rally that drove the coin’s price up above $400.
Scarcity of Supply
Another thing that has helped keep the price of Litecoin buoyant this year has been the scarcity of the altcoin. Litecoin happens to be one of the cryptocurrencies in the shortest supply. Like Bitcoin and other cryptos, LTC has a limited number of coins that will ever be “mined” and enter the public realm.
The total number of Litecoin ever to be mined is 84 million. That’s exactly four times as many as the 21 million total Bitcoins that can be mined.
However, nearly 80% of LTC has already been extracted, meaning that it won’t be long before all the coins are available.
The scarcity of LTC makes the cryptocurrency more valuable in the coming years should and help drive up its price. Once people are no longer mining the coin, its price should shoot upwards. If investors can weather the near-term volatility, Litecoin could pay off handsomely in years to come.
However, holding onto Litecoin long enough to book solid gains could be difficult. Even Charlie Lee, the computer scientist who created Litecoin back in 2011, has sold all his holdings of the cryptocurrency.
The sale sent crypto bulls into fits and was a real blow to the fledgling digital asset.
LTC Is Popular but Risky
Despite being forsaken by its creator, Litecoin has been gaining in popularity in recent years. Investors can purchase Litecoin on both the Robinhood and Webull trading platforms.
It can also be bought and sold on exchanges in several European countries, such as the United Kingdom, Germany and Switzerland. Billing itself as the “cryptocurrency for payments” due to its speed, many organizations are apparently considering using Litecoin as the basis for their own digital payment systems.
Right now, the entire cryptocurrency market is one big speculation. While cryptocurrencies such as LTC and others are maturing and evolving, the current volatility makes the digital coins an extremely risky proposition.
While cryptocurrencies might one day serve a useful purpose and become an alternative to reserves such as gold, they have not yet found their footing. Drops and runs of 60% are difficult waves for any investor to ride. For now, it would be best for investors to watch from the shoreline and wait for calmer waters before wading in.
On the date of publication, Joel Baglole did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.