Litecoin prices have tripled in 2019, climbing higher as the digital currency benefits from numerous tailwinds.
The cryptocurrency, which is very similar to its digital sibling bitcoin, reached an annual high of $98.89 on April 3, CoinDesk price data reveals.
At this point, the altcoin (a digital currency besides bitcoin) had gained almost 230% year-to-date (YTD), additional CoinDesk figures show.
The cryptocurrency has pulled back since then, giving up some of its returns, but reached as much as $90.21 earlier today, still up more than 200% YTD.
[Ed note: Investing in cryptocoins or tokens is highly speculative and the market is largely unregulated. Anyone considering it should be prepared to lose their entire investment.]
By generating these impressive gains, litecoin has outperformed bitcoin, bitcoin cash, ether and XRP so far in 2019.
When explaining the bitcoin sibling's bullish activity, analysts have pointed to several factors.
A report released by prime dealer SFOX identified five key variables, including:
The Upcoming Halving Event
Litecoin's mining incentive will decline by 50% in August, reducing the supply of new cryptocurrency entering the system.
Investors may have already started pricing in this event, CoinDesk reported back in February.
In the past, cryptocurrency traders have priced in litecoin halving events ahead of time, the SFOX report noted.
Rising Merchant Adoption
Since litecoin was created in 2011, the number of merchants accepting it as a payment method has risen.
The digital currency was created to be a "frictionless, borderless, peer-to-peer electronic cash," the report noted, so any development that helps litecoin meet this purpose could provide tailwinds for its price.
When asked to provide comment on the latest businesses that accept the cryptocurrency, the Litecoin Foundation told SFOX that "tens of thousands [of] merchants worldwide and growing" accept litecoin as a form of payment.
Faster Transaction Speeds
One key development the SFOX report cited was declining transaction speeds, which make it easier for industry participants to use litecoin as a medium of exchange.
The number of active nodes has risen sharply this year, numbering 183 at the time of this writing, after exceeding 100 in January 2019, according to data provider 1ML.com.
The amount of payment channels has more than quadrupled, rising from fewer than 300 in January to almost 1,300 at the time of this writing, additional IML.com figures show.
Declining Transaction Fees
Over the last year, litecoin's transaction fees have declined significantly, making it less costly for people to use the digital currency as a medium of exchange.
Between April 4, 2018, and the same time in 2019, the median fee for executing litecoin transactions has declined more than 50%, according to figures supplied by BitInfoCharts.
These expenses are expected to drop significantly when Litecoin Core 0.17.1, which is available on GitHub for testing, is implemented.
Privacy Enhancements
Another development that has been cited as a bullish factor for litecoin is anticipation surrounding potential improvements in the digital currency's privacy.
In January, litecoin creator Charlie Lee tweeted that "I am now focused on making Litecoin more fungible by adding Confidential Transactions," emphasizing that both litecoin and its digital sibling bitcoin were lacking fungibility, the ease with which one unit of something is exchanged for another.
In addition to the five key factors outlined by the SFOX report, market observers have identified other key variables that may have pushed litecoin prices higher thus far in 2019.
Partnerships
The Litecoin Foundation has announced several partnerships this year, which may have helped fuel the digital currency's strong appreciation.
"The partnerships the Litecoin Foundation has been able to forge over the past 4 or 5 months have increased awareness beyond that of the crypto echo chamber many within the space forget we tend to reside in," said David Schwartz, the foundation's project director.
Further, these agreements may have provided tailwinds for the cryptocurrency, he noted.
In February, the foundation revealed that it had teamed up with concert production company C&U Entertainment Global to offer VIP tickets at a George Mason University concert that could only be bought using litecoin.
The exact same day, the Litecoin Foundation announced a new partnership with major kickboxing league GLORY, which let individuals purchase items through the league's online shop GLORYshop.com using litecoin.
Further, litecoin users will be able to access exclusive offers through this agreement, including backstage passes and meetings with athletes, that can only be purchased using the digital currency.
Bitcoin's Spillover Effects
Bitcoin, the largest digital currency by market value, rose more than 40% between the start of 2019 and its annual high of more than $5,300, according to CoinDesk.
When investors flock to bitcoin, it frequently has "spillover effects" for "altcoins," helping drive them higher, noted Charles Hayter, cofounder and CEO of digital currency data platform CryptoCompare.
Since these altcoins have smaller market capitalizations than bitcoin, they are more sensitive to capital inflows, frequently experiencing outsize gains.
Litecoin, in particular, has frequently followed bitcoin in its price movements.
"The two are virtually inseparable and have a very high correlation," noted Mati Greenspan, senior market analyst for social trading platform eToro.
As a result, it is easy to see why litecoin could benefit when bitcoin prices move higher.
Litecoin A 'Market Leader'
Jon Pearlstone, publisher of the newsletter CryptoPatterns, offered some technical analysis on bitcoin's digital sibling.
"Litecoin experienced a 95% drop in price from its high around $450 in 2017," he noted.
"Since the market recently bottomed, Litecoin has been a market leader among altcoins moving up more than 200%," said Pearlstone.
"Since the large altcoin market has continue to move in the same direction during the last 12-18 months, the stronger than average move up for Litecoin has been more of a 'catch up' with Bitcoin (which fell around 75%) and other large altcoins that did not drop as far from their all time highs," he stated.
"Moving forward, indicators to watch to see if Litecoin can sustain better than average performance will be 1) how price reacts to a test of the $100 level, and 2) the need for stronger volume on moves higher as confirmation of real bullish sentiment. The entire move up from the lows has been on modest relative volume."
Disclosure: I own some bitcoin, bitcoin cash and ether.
