Like several other cryptocurrencies, Litecoin (CCC:LTC-USD) has some impressive, very useful attributes. But even like most other cryptocurrencies, Litecoin doesn’t look well positioned to overcome the major hurdles the asset class is facing.
Additionally, Litecoin’s positives are likely to be offset by an important weakness. Given these points, I urge longer-term investors to sell the cryptocurrency.
As several reporters and other experts have pointed out, Litecoin has a number of key benefits.
In particular, Litecoin processes transactions much faster and for much less money than Bitcoin (CCC:BTC-USD). And after InvestorPlace Columnist Wayne Duggan, Litecoin is pretty reliable and liquid.
Crypto’s hurdles are likely to trip Litecoin
In previous columns, I’ve pointed out some of the problems cryptocurrencies face. Above all, governments and major banks seem to reject cryptocurrencies, as shown by Treasury Secretary Janet Yellen’s negative comments on the asset class.
And governments can take important steps to combat the effectiveness of cryptocurrencies. In particular, the IRS has made every cryptocurrency transaction subject to capital gains tax, and the Justice Department recently recovered roughly half of the bitcoin-denominated ransom paid to the perpetrators of the cyber attack on the Colonial Pipeline. With the latter measure, the government showed that cryptos are not as inaccessible to regulators as many believed, undermining investor and user confidence in them.
Like many others, I believe that governments and large banks will take additional steps to undermine cryptocurrencies. I wouldn’t even be shocked if the US government and many other western democracies effectively ban or partially ban cryptos in the future, citing their use by criminals.
While several large companies including PayPal (NASDAQ:PYPL), Expedia (NASDAQ:EXPE) and Starbucks (NASDAQ:SBUX) accept Bitcoin as a means of payment, far fewer companies accept Litecoin, with PayPal being one of the few well-known companies that supports this. So even if cryptos survive and thrive, Litecoin will have a significant disadvantage compared to the first movers in the industry, Bitcoin and the like ether (ETH-USD). As I mentioned in previous columns on Ethereum, a number of large institutions are using it.
Withdrawal from government incentives
Going back to the trends that are likely to hurt all cryptocurrencies, I believe there is a direct correlation between incentives from Congress, the exchange, the Federal Reserve and the prices of cryptocurrencies.
Keep in mind that the last huge boom in cryptocurrencies happened in 2017. Probably no coincidence, a massive tax cut was decided in the same year and the stock market rebounded tremendously. As many people felt a lot richer from the stock boom and believed they would have more disposable income from the tax cut, crypto prices rose. However, when the wealth effect wore off, the crypto bubble burst in 2018.
Fast forward to 2021. Congress, the Fed and the stock market have teamed up to bring plenty of extra disposable income to Americans’ bank accounts. It is reasonable to assume that if the stimulus is removed and the stock market slows down, cryptos will fall again.
To increase the strength of cryptos earlier this year, Americans had saved huge amounts of money by not commuting to work and severely restricting their indoor recreational activities outside of their homes.
The conclusion to Litecoin
I believe we are seeing the start of the impact of the unwinding of all of these trends on all cryptos, including Litecoin. For example, in the month that ended June 11, Litecoin crashed from around $ 377 per dollar to just $ 165 per dollar.
In addition to the many hurdles that all cryptos face, Litecoin has to tackle the significant first-time user benefit of Bitcoin and Ethereum. So I recommend investors sell their Litecoin holdings.
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At the time of this writing, Larry Ramer held positions (neither directly nor indirectly) in the securities discussed in this article.
Larry researched and written articles on US stocks for 14 years. He was a contributor to The Fly and Israel’s largest business newspaper Globes. His hugely successful contrarian picks included Solar Stock, Roku, Plug Power, and Snap. You can reach him on StockTwits at @larryramer. Larry started writing columns for InvestorPlace in 2015.