If you had to draw up a list of the most disappointing major cryptocurrencies of the year, Litecoin (LTC +0.02%) would have to be at the top. It's up only 17% for the year, compared to 52% for Ethereum (ETH 0.31%) and 75% for Bitcoin (BTC 0.36%).
But underperformance is just part of the story at Litecoin. A key catalyst in August that was supposed to send it soaring hasn't delivered as expected, and the long-term outlook for the digital currency is now much cloudier than many would have expected at the start of the year. Let's take a closer look.
The catalyst that wasn't
The key catalyst that was supposed to result in massive price appreciation was the Litecoin halving, which took place on Aug. 2. In a halving event, the reward for mining a new block on the blockchain falls by one-half. This is a key technical event that impacts factors such as scarcity. A halving event takes place only once every four years, and three previous halving events in 2011, 2015, and 2019 have been associated with price gains for the cryptocurrency.
While past performance is no guarantee of future results, investors obviously had reasons to be hopeful about this new halving. Go back to the beginning of the year, and you can find crypto analysts delivering very optimistic price forecasts for Litecoin as high as $500.
Image source: Getty Images.
It has only been a week since the halving, but it's already starting to look like an unmitigated disaster. Over the past seven days, the price of Litecoin has dropped 12%. After the halving, it was supposed to smash through the $100 mark.
But now, trading at just $82, the crypto looks like it is going to smash through the $80 mark on the way down. This wasn't supposed to happen, and it's obvious cause for concern.
Hopeful signs from institutional investors
That being said, Litecoin does have one major factor in its favor: the support of institutional investors. In June, a consortium of top institutional investors (including Fidelity Investments, Citadel Securities, and Charles Schwab) officially launched EDX Markets, a cryptocurrency exchange solely for fellow institutional investors. It planned to trade only four cryptocurrencies: Bitcoin, Ethereum, Bitcoin Cash (BCH 1.23%), and Litecoin.
Yes, that's right: Litecoin seemed to have the imprimatur of some of the biggest institutional investors in the world. As soon as EDX Markets officially launched, it experienced a mini-rally at the end of June that saw it surge past the $100 mark. The investment thesis here was remarkably simple: As more institutional investors poured their cash into the digital coin, it would send the price soaring even higher.
CRYPTO: LTC
Key Data Points
Earlier in the summer, this appeared to be the case. It looked like the crypto whales (i.e., the biggest players in the market) were indeed moving into Litecoin ahead of the halving. They seemed to know something the rest of the market did not know, and that generated even more anticipation.
Should you buy Litecoin?
Yes, there is still a chance for a post-halving rally, but the opportunity seems to be slipping away. This is very disappointing because the halving date of Aug. 2 was circled on the calendars of every major crypto investor. This was not some surprise catalyst that appeared out of nowhere -- investors have known about it for four years!
From my perspective, the midsummer rally that Litecoin experienced was not due to the halving but was instead due to the immediate influx of institutional money into Litecoin as the result of the launch of EDX Markets. Thus, if you are still thinking about buying Litecoin, the behavior of institutional investors is the one factor that you should be focusing on now. You should be looking for any signs that institutional investors are moving into Litecoin because this is the one factor that can still save it over the long haul.
At the end of the day, however, I don't think you should be buying Litecoin while it's down. You're much better off simply buying Bitcoin instead and not worrying about Litecoin at all.
