During the final two months of 2022, Litecoin (LTC -4.43%) was one of the best-performing cryptos in the market. But in 2023, everyone seems to have forgotten about it. Litecoin is "only" up 13.3% over the past 30 days, while other cryptos are racking up 30%, 40%, and even 50% returns during that same time.
But don't sleep on Litecoin. There's a case to be made that Litecoin has two strong growth catalysts in place for 2023. In fact, some traders are even saying that Litecoin could increase in value by 10 times to a price of $1,000. Let's dig into the numbers to see whether now is the right time to buy Litecoin.
Catalyst No. 1: The halving
The primary catalyst for Litecoin in 2023 is its upcoming halving event in August. In a halving, the crypto reward for mining a block of Litecoin is reduced by one-half. This will increase the scarcity of Litecoin while making it less inflationary over time. Theoretically, this should boost Litecoin's price.
A halving event only takes place every four years, so trader anticipation begins to build ahead of this event. For example, Litecoin's year-end rally in 2022 was largely attributed to trader anticipation of this year's halving event. Traders were getting in early, hoping for big gains later.
Image source: Getty Images.
However, rallies for Litecoin have not always materialized as planned. Some investors now think the correlation between Litecoin price appreciation and halving events may be weaker and more ephemeral than originally thought. There have been two previous halving events for Litecoin -- in 2015 and 2019 -- and the results have been mixed. In 2015, the coin briefly rallied 820% before the event, while in 2019, it produced a 550% rally.
However, these rallies were short-lived. I think that's why the Litecoin rally in early 2023 has been muted at best. Traders are still trying to figure out what will happen with Litecoin over the next six months.
Catalyst No. 2: The Mastercard alliance
Fortunately, Litecoin has another growth catalyst in place for 2023: a new alliance with Mastercard Inc. (MA -0.07%). As part of this alliance, Mastercard will offer Litecoin cards to customers in the U.K. and E.U. This makes Litecoin more valuable because it eliminates much of the complexity of using crypto to make purchases within Europe. This alliance builds on a similar program available within the U.S. market.
The new cards will further blur the line between crypto and fiat. You can think of these European Litecoin cards as being collateralized with Litecoin. But store merchants won't know that -- they will only know that you are paying them in euros and with a card they accept. As Litecoin becomes an increasingly more mainstream payment mechanism, this will only make Litecoin more valuable over the long haul.
Litecoin vs. Bitcoin
So far, so good, right? These appear to be two strong catalysts. Unfortunately, Litecoin has always existed in Bitcoin's (BTC -4.11%) shadow. Before investing in Litecoin, it's important to understand this relationship. Any time Litecoin looks like a good buy, Bitcoin often turns out to be a better one.
Historically, investors have considered Bitcoin "gold" and Litecoin "silver." Both are proof-of-work cryptocurrencies, and Litecoin was actually created with Bitcoin in mind. It was intended to be a leaner, faster version of Bitcoin, which has been around since 2009, while Litecoin has been around since 2011.
Given Litecoin's long track record, we have a pretty good idea of how it's going to trade. Over its 12-year history, Litecoin has delivered impressive returns of 2,038.33%. Not as impressive as Bitcoin's eye-popping 16,012.38% returns, but impressive nonetheless.
Of course, the big question is whether Litecoin achieved these returns with less volatility than Bitcoin. If you're getting a "lite" version of a cryptocurrency (in terms of absolute returns), you'd like to do that with less volatility. But that doesn't appear to be the case. Some academic papers, for example, have shown that Litecoin is actually more volatile than Bitcoin. So, with Litecoin, you're potentially taking on more risk for less upside potential.
Is Litecoin a buy?
For this reason, I tend to think of Litecoin as "a poor man's Bitcoin." Yes, you can now buy a full Litecoin for approximately $100 (compared to $22,000 for Bitcoin), but you're getting less upside and more volatility. All things being equal, I'd rather hold Bitcoin than Litecoin. Both can be used for payments, and both have credit card products based around them. From my perspective, there's simply more upside potential with Bitcoin over a long-time horizon. The new Litecoin alliance with Mastercard is certainly interesting, but I'd much rather buy and hold Bitcoin for the long haul.
