Bitcoin Dive Driving Down Litecoin Prices

With over 80 digital currencies floating around cyberspace, there is some degree of influence of one over the other. It is largely due to panic over the future of digital currencies but with some there is a direct influence. Bitcoin and Litecoin have a close relationship in this regard. So it was not surprising to find that when the Bitcoin price dived yesterday, Litecoin followed closely behind.

Bitcoin dominates the cryptocurrencies and Litecoin is often touted as a close contender. The price difference though is monumental – Bitcoin was hovering around $900 before its plummet starting from 16 December 2013 while Litecoin was basking in the modest $30 range. Nevertheless it was interesting to see how Litecoin’s price fluctuations from December 16 resembled that of Bitcoin’s.

The Link Between Bitcoin and Litecoin

The problem largely lies in the Bitcoin-Litecoin exchanges. Some see Litecoin as being pegged to Bitcoin but this is not exactly true. There are few exchanges that will allow users to buy or sell Litecoin for US dollars. Instead it depends on Bitcoin as an intermediary. Simply this means that you have to buy Bitcoin to then buy Litecoin and sell Litecoin for Bitcoin and then convert the Bitcoin to fiat currency.

While Bitcoiners are scrambling since Bitcoin almost halved in price within the past few days, it is important to remember that many would also have lost on Litecoin as well. Many Bitcoiners tried to diversify their portfolio into other digital currencies like Litecoin to reduce their risk. Irrespective of whether Litecoin is 1/30th the price of Bitcoin – its loss in value was almost as disastrous as that of Bitcoin.

Litecoin may not be as popular or in demand as Bitcoin, but the regulations and restrictions over Bitcoin may ultimately involve Litecoin and other digital currencies as well.

Is this the end of Litecoin?

Bitcoin may be seen as a heavy weight that could afford to lose a few pounds yet still be desirable. Litecoin does not have the same value with its comparatively low prices. However, recent developments are unlikely to be the end of cryptocurrencies. At least not in the short term although nobody knows for sure.

Bitcoin’s plummet was largely fueled by the China’s banning of banks and third party providers from doing any business with Bitcoin exchanges. Some agree that the Bitcoin price needed some market correction especially since its rapidly rose in such a short period of time. Bitcoin may indeed reach the tens of thousands of dollars in time to come but the recent spike was not necessarily ‘healthy’.

Litecoin on the other hand was not named and targeted in the same manner as Bitcoin. With Bitcoin facing a tightening of the noose, Litecoin is undoubtedly bound to be affected by these regulations in time to come. The dive in Litecoin prices however, was more largely due to the close Bitcoin-Litecoin relationship when trading on exchanges.

Market panic over Bitcoin is not new especially with lawmakers and financial institutions regularly  issuing warnings to consumers. Litecoin has been thus far relatively immune to the same scares. Despite the recent turn of events, Litecoin is still doing well in comparison to its value at the beginning of the year. From $0.07 at the start of January 2013 to $18 today after the recent dip, Litecoin does not seem set to crash anytime soon.

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