Litecoin is often referred to as “the silver to Bitcoin’s gold,” yet it has fallen out of sync with BTC prices in recent months. This divergence—which started in mid-July and festered through August—is creating tons of slack in the Litecoin price forecast.
For example, the LTC/USD exchange rate fell 1.67% yesterday, while the LTC/BTC exchange rate fell 4.89% by comparison. The disparity reflects greater pessimism among investors that already have money in the crypto market.
Many of them rotated funds from LTC to BTC in the weeks running up to the Bitcoin August 1 fork. As a result, Bitcoin appreciated considerably against Litecoin.
However, Litecoin recently became convertible from fiat money. Investors were able to buy Litecoin without using Bitcoin as an intermediary, which led to a bump in the LTC/USD and an opportunity for arbitrage.
Traders that rotated into Bitcoin last month could very well move back into Litecoin at a discount, particularly now that BTC prices are above $4,300. Such a maneuver could potentially kickstart a rally in LTC prices.
But market psychology and herd behavior are not the only tailwinds for LTC. There was a spate of positive Litecoin news that was never fully absorbed into its price, including the fact that online retailing giant Overstock.com, Inc. (NASDAQ:OSTK) is accepting Litecoin as a legitimate payment network.
Moreover, Litecoin has been one step ahead of Bitcoin with its integration of the “Lightning” network and Segregated Witness scaling solutions.
We expect the rotation that diverted funds away from Litecoin to reverse in the coming days. This will likely rebalance Litecoin’s value relative to Bitcoin, kickstart a rally in LTC prices, and re-establish the positive trend that pushed Litecoin up 1,064% this year.