Possible bitcoin crash catalyst? The rise of altcoins

[damnek]

Here's something controversial:

It is well known that bubbles need a signal to pop. For example, in 2012 we had the news that pirateat40 would terminate BS&T, and in april this year we had the mtgox DDOS which ignited a selloff. I think that bitcoin is primed for a correction and I think the catalyst this time could be the dramatic growth of LTC/BTC (and other altcoins) over the last few days.

The market is slowly waking up to the idea that in the future, conversion between altcoins (and bitcoin) will become nearly frictionless, removing any barrier for value to shift between altcoins. Due to open source, any improvement to the bitcoin software can instantly be adopted by the altcoins. Moreover, this could be a solution to bitcoin's deflation problem: Altcoins can absorb new money that is seeking to enter the space of virtual currencies, as we have already been witnessing with litecoin.

I like to compare this paradigm shift to the exchange decentralization which we've seen after all the pain caused by mtgox since April. This time, the pain is caused by the extreme valuation of bitcoin and the perceived unfairness of the early adaptor advantage.

[dnaleor]

the rise of LTC and other alts is just a bubble. People wantto buy "more than 1 expensive coin" and buy 25 LTC instead.
It is just a psychological thing...

We saw in in april too: BTC/LTC went up very fast and then crashed t the "new mean".
This will happen again... (already sold 40% of my LTC this night)

[damnek]

the rise of LTC and other alts is just a bubble. People wantto buy "more than 1 expensive coin" and buy 25 LTC instead.
It is just a psychological thing...

We saw in in april too: BTC/LTC went up very fast and then crashed t the "new mean".
This will happen again... (already sold 40% of my LTC this night)

I've seen this argument a few times by now, but I'm not convinced. The exact same can be applied to bitcoin vs. gold or bitcoin vs. fiat. In the end valuation is subjective, and the nature of cryptocurrencies (open source so easy to replicate) entirely levels the playing field.

[damnek]

Taking it a step further: If all the exchanges accepted both bitcoin and litecoin, their price in USD would have been a lot closer. Mtgox and bitstamp and others essentially act as gatekeepers.

[User705]

the rise of LTC and other alts is just a bubble. People wantto buy "more than 1 expensive coin" and buy 25 LTC instead.
It is just a psychological thing...

We saw in in april too: BTC/LTC went up very fast and then crashed t the "new mean".
This will happen again... (already sold 40% of my LTC this night)

That's just an opinion and nothing is stopping the Chinese or anyone else buying whatever coin they want.  In general it does show that bitcoin isn't as scarce as one might think.  LTC has a billion market cap which is where bitcoin was a few months ago.  If that doesn't at least give someone pause well good luck to them.

[kingcrimson]

Litecoin is out of the bag, ratio should settle at .02 though IMO. The correction will either be BTC taking off further, LTC crashing, or both crashing. Who knows.

[freebird]

Litecoin doesn't yet have hedge funds buying into it, as far as I know. Much of the current growth of Bitcoin is being caused by institutional buyers and funds such as the Bitcoin Investment Trust on Second Market. If LTC can attract those kind of investors, then it could get a lot closer to parity with BTC. Until then, I suspect LTC is simply in a bubble. BTC's price increase can be sustained by continued institutional buying, whereas LTC doesn't have that type of buying to sustain its current rally.

[theonewhowaskazu]

Taking it a step further: If all the exchanges accepted both bitcoin and litecoin, their price in USD would have been a lot closer. Mtgox and bitstamp and others essentially act as gatekeepers.

Well,

(1) it would be incredibly stupid for either of them to start using Litecoin, because if alt-coins start eating at Bitcoin's share and causing crashes & instability, all of crypto loses. Since they'd basically start competing with themselves if they started accepting Litecoin, they may as well continue with only Bitcoin.

(2) Everyone knows that Bitcoin is the only crypto I can actually buy things with. The rest are like Bitcoin in that their speculation is high, but unlike Bitcoin there's nothing at all behind it. Bitcoin is like fractional reserve with 5% "reserve": The other 95% of the value is based on the "loans" (or in this case, hope for future acceptance of Bitcoin) will pay off. Litecoin on the other hand is pure money-from-nowhere, 0% "reserve". Lots of the value in each is due to speculation but Litecoin is like speculation on speculation.

(3) Litecoin was developed hugely unprofessionally and uses the BS known as scrypt, making it hugely more vulnerable than Bitcoin.

It is possible that Alt-coins will kill Bitcoin though, I'll give you that. In fact, the number 1 most likely way that crypto may die is too many altcoins.

[freebird]

It is possible that Alt-coins will kill Bitcoin though, I'll give you that. In fact, the number 1 most likely way that crypto may die is too many altcoins.

I doubt it. If bitcoin survives to become something truly major, it will be because huge institutional players get in. I doubt they will care much about altcoins. There could be hundreds of altcoins that will be simply ignored by the big money. They will be considered like penny stocks. Some people will play around with them, but the big money will stick to the "conservative" investment, bitcoin.

[damnek]

Litecoin doesn't yet have hedge funds buying into it, as far as I know. Much of the current growth of Bitcoin is being caused by institutional buyers and funds such as the Bitcoin Investment Trust on Second Market. If LTC can attract those kind of investors, then it could get a lot closer to parity with BTC. Until then, I suspect LTC is simply in a bubble. BTC's price increase can be sustained by continued institutional buying, whereas LTC doesn't have that type of buying to sustain its current rally.

True, but smart money moves before institutions do. One may be able to cut short Winklevoss' ETF plans by starting a cryptocurrency index fund.

[KFR]

(3) Litecoin was developed hugely unprofessionally and uses the BS known as scrypt, making it hugely more vulnerable than Bitcoin.

That seems to be completely at odds with my own analysis.  Could you elaborate?  Thanks.

[emanymton]

The alts add a huge extra pool of liquidity to btc which makes it more stable imo.

[damnek]

(1) it would be incredibly stupid for either of them to start using Litecoin, because if alt-coins start eating at Bitcoin's share and causing crashes & instability, all of crypto loses. Since they'd basically start competing with themselves if they started accepting Litecoin, they may as well continue with only Bitcoin.

So you're agreeing with me that part of bitcoin's high valuation is due to the (currently existing) friction to convert to altcoins? What if those barriers disappear?

(2) Everyone knows that Bitcoin is the only crypto I can actually buy things with. The rest are like Bitcoin in that their speculation is high, but unlike Bitcoin there's nothing at all behind it.

From a technical point of view it is trivial for payment processors such as Bitpay to start accepting altcoins.

[damnek]

Another thought: By decentralizing away from one hashing algorithm (SHA256 which was designed by the NSA), less confidence in the security one algorithm is needed.

[KFR]

A very good point.

[notme]

Litecoin doesn't yet have hedge funds buying into it, as far as I know. Much of the current growth of Bitcoin is being caused by institutional buyers and funds such as the Bitcoin Investment Trust on Second Market. If LTC can attract those kind of investors, then it could get a lot closer to parity with BTC. Until then, I suspect LTC is simply in a bubble. BTC's price increase can be sustained by continued institutional buying, whereas LTC doesn't have that type of buying to sustain its current rally.

+1

In addition, LTC are being introduced at 4 times the rate of BTC.

[User705]

Litecoin doesn't yet have hedge funds buying into it, as far as I know. Much of the current growth of Bitcoin is being caused by institutional buyers and funds such as the Bitcoin Investment Trust on Second Market. If LTC can attract those kind of investors, then it could get a lot closer to parity with BTC. Until then, I suspect LTC is simply in a bubble. BTC's price increase can be sustained by continued institutional buying, whereas LTC doesn't have that type of buying to sustain its current rally.

I wonder what that institutional investor thinks now when they "invested" into BTC when cap was under 1 billion and LTC is the same now cap.  Also how does anyone know who's buying what and at what amounts?

[PenAndPaper]

I've seen this argument a few times by now, but I'm not convinced. The exact same can be applied to bitcoin vs. gold or bitcoin vs. fiat.

Bitcoin vs cash is a comparison of apples and oranges. Some people see bitcoin and litecoin as essentially the same thing with one be way cheaper or undervalued over the other

[solex]

The OP is overlooking the power of the mining network. 5,000 Thash and ramping up further means the Bitcoin blockchain is very secure. This will keep a floor under the BTC value. It would not be surprising to see some major firms get into ASIC production now that $1000 is breached.

Most alt-coins use scrypt, so they compete with LTC directly. LTC also has a major test coming up as an ASIC is in development. Whoever gets there first might have a real window to take over 50% of the LTC hashpower. This will make people nervous for a while.

[Elwar]

During the last bubble in March I bought LTC and PPC just to diversify and hedge my BTC a little bit. The Bitcoin price was so high that I was not comfortable buying at such a high price but I did not want my money in dollars.