An Analysis of Bitcoin vs Litecoin and Gold vs Silver

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Nobody disputes Bitcoin as the “gold standard” of cryptocurrencies. No other coin comes close to market cap and daily volume (in USD). Bitcoin, as the pioneer of the crypto economy, has enjoyed the benefits of being the first mover in this new financial era. Likewise, it is generally accepted that LTC is the “silver standard” of cryptos. From its design to its inception, Litecoin has been branded the “silver to bitcoin gold”.

Indeed, in the announcement of Litecoin’s launch from Charlie Lee, he stated:

“Litecoin is the result of some of us who joined together on IRC in an effort to create a real alternative currency similar to Bitcoin. We wanted to make a coin that is silver to Bitcoin’s gold.”

Has the design of Litecoin succeeded in its expressly stated goal? Let’s take a look at how the comparison actually holds up, and explore the reasons behind what is found.

Direct Comparison of Litecoin as “Silver” and Bitcoin as “Gold” 

Gold is a precious metal with an extremely limited supply, and silver is a precious metal, limited in supply, but not to the degree of gold. The historic gold/silver ratio is right around 16:1, meaning 16 ounces of silver would equal 1 ounce of gold. The current ratio of gold to silver is approximately 64:1, or 0.015625. Bitcoin was designed to be a digital equivalent of gold, and thus has an extremely limited supply, and is “mined” in a digital representation of gold mining. Litecoin is limited in supply, but not to the degree of Bitcoin. The designed ratio between BTC and LTC is 4:1, meaning that in the ultimate final count, there will be four litecoins for every one bitcoin. The current BTC/LTC ratio is approximately 80:1, or 0.01239, a 20% difference.  Not bad for a few coins with 3-5 years of history behind them.

The all-time high price of Bitcoin was reached on November 29, 2013 as it touched $1,242 per coin, on the same day that gold traded for $1,240. The all-time high of Litecoin was reached on November 28, 2013 when it touched $48.47 per coin. In late April of 2011, the all-time high for silver was reached at $49.76 per ounce.  This renders Litecoin’s all-time high to within 3% of the all-time high of silver.  It’s hard to think that anything but the silver analogy is what propelled Litecoin to so close a value as silver.

It’s hard to look at these numbers and state that it’s all a coincidence. The current ratios as well as the high points are very similar. The numbers are simply too close for it to be coincidence. More likely than not, the psychologocal link has been made, and as the market has long held gold and silver to be valued at what they’re worth, the two big coins in the crypto economy, based on the monetary theories of gold and silver, have risen to mimic the standards upon which they were designed. Remember, humanity has valued, and thus has had a market for, gold and silver for millenia, so the concepts and values of these precious metals are ingrained into the human economy. Everyone knows that gold is valuable, and silver is valuable, and everyone knows that gold is worth more than silver. It’s in the human psyche. It’s no big stretch of the imagination to conclude that Bitcoin and Litecoin, designed to be the crypto equivalents of the two big precious metals, have succeeded in mimicing their relative values.

So, what does this mean for the future of Litecoin and Bitcoin?

If the link is maintained and continues to be reinforced (which is a significant “if” considering how young the whole crypto economy is), we should be able to predict the ratios to some degree of certainty. Lately the news for Bitcoin has been pretty stellar, with more merchants accepting it, more investors interested in it, and more individuals learning about it. The future for Bitcoin is bright, and it is reasonable to expect that Bitcoin will eventually overcome all the bad press it endured during the 2013 year, and with it, the current lower prices.

Litecoin is still primarily in the shadows, with fewer merchants, investors and individuals knowing about it, and fewer being interested in it. The Litecoin development team is continuing to work on adoption of the coin, with a new introductory video, shown below, an upcoming new website (litecoin.com) and a new client (Litecoin Core). The silver analogy has worked out very well for Litecoin thus far, helping it to capture and maintain the #2 spot on the crypto charts. If the history of humanity is any guide, people prefer multiple tiers of value, and cryptos very well may be no different. If this is the case, it is reasonable to expect that Litecoin will continue to follow Bitcoin’s gains and share its losses, and maybe eventually migrate closer to the designed 4:1 ratio, just like many silver bugs are hoping for the price of silver to return to its historic average of 16:1. If the trend holds, the future for Litecoin is also very bright, just like it’s big brother, Bitcoin.

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Coinbrief

Coin Brief is an open source website for digital news. It provides cryptocurrency tools, mining calculators, tutorials, and more. It was acquired by 99Bitcoins on September 2015.

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