Proponents of litecoin, the seventh-largest cryptocurrency, have long touted it as “silver to bitcoin’s gold,” the medium of exchange to BTC’s store of value. Much like physical silver, though, litecoin currently trades well below its all-time high, having plunged to about $55 from a peak of $358. However, according to cryptocurrency hedge fund Multicoin Capital, even at that mark litecoin is “significantly overvalued.”

Multicoin, which is short LTC, lays out its bear case for the asset in a new report, authored by managing partner Tushar Jain.

A Maturing Market and a Diminishing ‘Coinbase Effect’

The Texas-based fund, via Jain, argues that LTC faces a variety of negative catalysts, with no bull case to offset them.

First, Jain alleges that litecoin’s 2017 bull run came predominantly as a result of naivety among retail investors and immaturity in the cryptocurrency market. As evidence, he cites the fact that LTC was the “least expensive per-unit asset on Coinbase,” one of the most popular trading platforms among inexperienced cryptocurrency buyers — the most likely group to not recognize that you can purchase fractional coins.

The coin no longer bears that distinction, though, since Coinbase listed ethereum classic (ETC) in August and has further announced plans to consider listing a variety of other assets, which promises to diminish the impact that a Coinbase listing provides for an individual cryptocurrency.

Next, Multicoin argues that the Litecoin Foundation is in a poor financial situation to continue operating effectively, holding only about $322,000 in assets — with 82 percent of those funds denominated in LTC.

Moreover, the firm says that LTC does not have a unique development roadmap, which helps explain the dearth of LTC GitHub commits, with the majority of LTC updates being forked from Bitcoin Core.


With these factors in mind, Jain, like several other analysts, called founder Charlie Lee’s decision to sell his entire LTC stake a “red flag,” regardless of his stated intentions in so doing.

“Despite his intentions, a misalignment of incentives now exists that decreases his motivation to continue development and add value to the protocol,” Jain wrote. “To better achieve this goal, we would have liked to see him time-lock his holdings or use them to fund further LTC development.”

Sell Pressures

Finally, Multicoin argues that the litecoin price will not be able to overcome the significant selling pressure it will likely face in the near future.

To wit, the report notes that Bitmain — the most valuable cryptocurrency company — owns over 1 million LTC, according to a leaked investor deck. The firm, led by CEO Jihan Wu, has been an outspoken supporter of bitcoin cash (BCH), which — like litecoin — aims to become the internet’s “digital cash.” Consequently, Multicoin believes that Bitmain will eventually dump the LTC, either to provide BCH with price support or to force litecoin further into bearish territory.

Even absent that looming risk, LTC faces continuous sell pressure from mining, a drawback which applies to all inflationary and disinflationary cryptocurrencies but whose effects will be particularly pronounced on an asset already facing significant negative catalysts.

Source:
https://www.ccn.com/litecoin-a-significantly-overvalued-relic-cryptocurrency-hedge-fund-claims/

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