As the entire cryptocurrency market softens, the price of Litecoin (CCC:LTC-USD) has been dragged through the mud, down from a high of $408.57 reached in mid-May to today’s price of around $181. Can this cryptocurrency get back above $400?
The digital coin flirted with $200 in the last few trading sessions of May but has since stumbled backward. Investors interested in cryptocurrencies need to decide if Litecoin’s current slump represents a buying opportunity or if they should remain on the sidelines during the current volatility in the entire crypto market and wait for prices to stabilize.
One of the reasons the entire cryptocurrency market has been gyrating lately is the threat of greater regulation coming to the market for digital coins and tokens.
U.S. authorities recently signaled that they plan to bring heightened oversight to the $1.5 trillion cryptocurrency market in an effort to reduce the risks posed to retail investors and traders. Chinese regulators have also said that they plan to take a more active role in regulating cryptocurrencies moving forward.
The prospect of more oversight has dampened enthusiasm for cryptocurrencies, which have, until now, had a reputation for operating as an alternative to traditional financial systems and attracted interest from retail investors because of their outlaw reputation.
Indeed, digital assets such as Litecoin are called “altcoins” by their fans, which refers to “alternative coins.” Regulators, however, say that they are concerned about the current volatility in cryptocurrency markets, as well as the fact that digital coins can be used by cyber criminals and terrorists and are difficult to track.
In the U.S., three leading federal bank regulators have come together to form an inter-agency called a “crypto sprint team.” The team is comprised of officials from the Office of the Comptroller of the Currency, the Federal Reserve and the Federal Deposit Insurance Corporation.
The Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission are also looking at ways to protect investors from cryptocurrency volatility.
Gary Gensler, the recently installed SEC Chairman, told Congress recently that he aims to bring “similar protections to the exchanges where you trade crypto assets as you might expect at the New York Stock Exchange or Nasdaq.”
Such statements have sent cryptocurrency markets into fits as proponents of the digital assets fear the party is coming to an end.
A Closer Look at Litecoin
While it continues to live in the shadow of the largest cryptocurrency, Bitcoin (CCC:BTC-USD), Litecoin has a lot of positives working in its favor.
It’s a digital coin that has enough utility that it should survive any regulatory crackdown and correction involving the broader cryptocurrency market. Founded in 2011, Litecoin is extremely similar to Bitcoin. Both digital coins are peer-to-peer cryptocurrencies created using open-source software.
However, Litecoin has an advantage over Bitcoin in that it has much faster processing speeds. Litecoin transactions are, on average, four times faster than Bitcoin transactions. For this reason, Litecoin is the preferred digital coin among many crypto aficionados, with some people predicting that Litecoin will eventually replace Bitcoin as a source of digital funds.
Another advantage working in Litecoin’s favor is the fact that it is one of the scarcest altcoins. The total number of Litecoin that can ever be mined is 84 million, and about 80% has already been extracted. The scarcity of LTC should make the cryptocurrency more valuable in coming years and help drive up its price.
Litecoin is also increasingly accessible and can now be bought and sold on both the Robinhood and Webull trading platforms.
While many crypto experts see a bright future for Litecoin and forecast that it will one day be the preferred digital coin for speedy digital financial transactions, the current environment for cryptocurrencies remains extremely turbulent.
The entire market has seen daily swings up and down of 10% or more in recent weeks and it is hard to predict if cryptocurrencies will rally from here or if the entire market will crash, dragging the price of Litecoin down with it.
While Litecoin could eventually make for one of the better cryptocurrency investments, the market for digital coins at present is very risky.
As regulators move in, it’s hard to predict how investors will react in the coming weeks and months. For this reason, it would be best to wait on the sidelines with LTC for the time being. See which way the winds blow before taking a position. And if the wind gusts form a funnel cloud, head for the hills.
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.