Is Litecoin massively undervalued?

[tacotime]

I've been playing around with a few metrics to try to determine how to value LTC versus BTC; these are:
1. Return in USD per day per USD invested
2. Cost of electricity to produce 1 USD

Let's start with 1.

BTC: KnC 275 GH/s @ $3,000
$200.00 per coin
0.3485 coins/day at difficulty 391m
or 69.70 USD/day after electicity (300 watts), 1.5% fee, 0.15 cents/kWh
0.0232333 USD day ^-1 USD invested^-1

LTC: 40x 7950 (+PSU/mobo/memory/HDD valued at $4000) @ $12,000
$2.40 per coin
23.8434 coins/day at difficulty 1080
or $27.632 USD/day after electicity (9600 watts), 1.5% fee, 0.15 cents/kWh
0.002302666 USD day^-1 USD invested^-1

How does this look if we chart it out, with BTC difficulty inflating at a rate of 25% every two weeks and LTC difficulty inflating at a rate of 2% every two weeks, given constant prices for both currencies?



Well, that's pretty interesting.  In order to hit the same USD return per day per investment dollar, BTC difficulty needs to increase at the same rate (25% per two weeks) for 22 weeks, or almost half a year.

How about 2, cost of electricity to produce 1 USD for both currencies?

With BTC at $200 USD and LTC at $2.40 USD, the equivalent of 1 USD is 0.005 BTC and 0.41666 LTC respectively.
How much power is used to produce this 1 USD?  The calculations should be pretty straightforward, so I won't detail them here, but you should be able to plug this into allchains.info and see it for yourself.

BTC
KnC Saturn @ 275 GH/s, 300 W at the wall, 1.5% pool fee, difficulty 391M
0.0154949785 cents per USD

LTC
7970 @ 630 KH/s, 225 W at the wall (my own measurements from one of my rigs), 1.5% pool fee, difficulty 1080
0.5887987788 cents per USD

That's a 40 fold greater cost of electricity to produce 1 USD in LTC as compared to BTC!  Of course, over time and progressive difficulty increases this will continued to come down, but unless there are massive price swings in the near future or ultra efficient LTC FPGAs/ASICs come out, the cost of production of 1 USD with Litecoin will continue to be many fold that of Bitcoin.

Finally, it's worth mentioning that LTC block reward will undergo halving in less than 2 years time, while Bitcoin is looking at 3.5 years from the current date.

Feel free to point out any stupid oversights or assumptions, but these have been my thoughts over the past week or so, especially as BTC price continues to rise.

[usahero]

The price is the result of supply&demand equilibrium, and not result of electricity wasted.

[tacotime]

The price is the result of supply&demand equilibrium, and not result of electricity wasted.

The price is always the result of supply and demand equilibrium -- but you don't think the cost of production plays into the quantities of a commodity that people are willing to sell for a given price (supply)?

[shakezula]

I'd say LTC is valued at exactly what its worth (i.e.: what people will pay for it). While it may take more electricity to make $1 worth of LTC, that's irrelevant if the market will only pay "xx" price for it.

[markm]

It does seem to indicate that if you are going to invest electricity into cryptocoins the scrypt coins might not be the best ones to invest your electricity into...

-MarkM-

[a4fire]

The price is the result of supply&demand equilibrium, and not result of electricity wasted.

The price is always the result of supply and demand equilibrium -- but you don't think the cost of production plays into the quantities of a commodity that people are willing to sell for a given price (supply)?

There is always a ROI risk for supplier. Besides speculations, investment and hopes main trend can depend from technology adoption by public. There is also a risk that the price of mining hardware is over valued, and it just waits for big technology players to step in (also depends from technology adoption by public).

[Oldminer]

I'd be interested to see how this compares to the cost vs profit of BTC in its early days, if anyone has the figures?

[Kenshin]

I think LTC, will increase a lot more very soon. It has increased so much already in the last few days. I am going to save some LTC, hoping it will go up to $150 soon. 

[RandomQ]

Also you have to take into account the value of your equipment after you depose of it.

I've been mining Alt-coins over 1 year on a graphics card I bought for ~$80 sold for ~$45, I've made an ROI on that card many times over.

If i buy ASIC mining equipment I maybe get my 100% ROI back but the value of that equipment may get only 5-10% of what I paid for it.

I've already had the value of ASIC equipment drop 1600% of what I paid for it, and I didn't get an 100% ROI on it.

[tacotime]

Also you have to take into account the value of your equipment after you depose of it.

I've been mining Alt-coins over 1 year on a graphics card I bought for ~$80 sold for ~$45, I've made an ROI on that card many times over.

If i buy ASIC mining equipment I maybe get my 100% ROI back but the value of that equipment may get only 5-10% of what I paid for it.

I've already had the value of ASIC equipment drop 1600% of what I paid for it, and I didn't get an 100% ROI on it.

Well, this is going to end pretty soon.  SHA256 ASICs went from a 110 nm process to a 28 nm process within 10 months, whereas lately we tend to get stuck on process nodes for a year or two.  We'll probably wall for a while at 1-2 GH/s per watt, and from that point onward we would expect ASIC hardware to devalue at a rate similar to GPUs.

[Notanon]

There have been a few set backs recently, mainly due to the closure of LTC-Global. Given that a replacement for it has been launched and another one is due to come online in the near future, I think the price might go back up due to demand for Litecoins to pay dividends with these exchanges, particularly from those listed who aren't mining operations.

On that note, perhaps people have been selling Litecoins too cheaply on exchanges, which has brought the price down lower than it should be valued at, and it wouldn't take too much effort for large-scale Litecoin miners to start selling their coins at higher prices to offset their costs of production and for others to follow suit as a result.

[FattyMcButterpants]

I think that it's overvalued..

this is what i was thinking.

[Mjbmonetarymetals]

It's not that many months since Bitcoin was still being termed "experimental". Very few people were around to see its inception and with it many were mined by the few, many bitcoins have been lost simply by deleting of wallets throughout this experimental phase (whether you consider that good or bad). Litecoin is now that opurtunity to get on board at ground floor level. With good developers now on board and likely a good even distribution of coins in my view as well as holding a couple of bitcoins having litecoin is worth giving some thought. This of course will be poo-pooed by anyone in the Bitcoin only camp but shouldn't be ruled out on those counts without doing a little research.

[MargaretsDream]

The price is the result of supply&demand equilibrium, and not result of electricity wasted.

The price is always the result of supply and demand equilibrium -- but you don't think the cost of production plays into the quantities of a commodity that people are willing to sell for a given price (supply)?

Nope, the only use of Litecoin is speculation, and not many want to put money in.

I personally wont as I believe Litecoin is overvalued and I dont want to burn money

[Endgame]

The price is the result of supply&demand equilibrium, and not result of electricity wasted.

Cost of production is a major influence on supply and demand. Most miner's aren't going to sell at a loss, which creates a price floor.

[tacotime]

The price is the result of supply&demand equilibrium, and not result of electricity wasted.

The price is always the result of supply and demand equilibrium -- but you don't think the cost of production plays into the quantities of a commodity that people are willing to sell for a given price (supply)?

Nope, the only use of Litecoin is speculation, and not many want to put money in.

I personally wont as I believe Litecoin is overvalued and I dont want to burn money

Well, people mining BTC may see it differently, though, as they are only putting a little work and investment into obtaining BTC with current hardware and can easily trade this BTC for comparatively more difficult to generate LTC.

[defaced]

The price is the result of supply&demand equilibrium, and not result of electricity wasted.

The price is always the result of supply and demand equilibrium -- but you don't think the cost of production plays into the quantities of a commodity that people are willing to sell for a given price (supply)?

I think the cost to produce SHOULD help determine the price but there are a lot of miners who cant math.

[klee]

LTC is useless shit - hope it dies sooner than later.
No trolling.

[digitalindustry]

Taco , im going to be honest I didn't read anything.

But I assume you are saying its undervalued,  if so you are right.

But im going to say its not.

[klee]

Taco , im going to be honest I didn't read anything.

But I assume you are saying its undervalued,  if so you are right.

But im going to say its not.

Probably in bubble mode - 0.5$/LTC would be a reasonable price.