An explanation of Litecoin’s price spike

On July 9, Litecoin reached exchange rates exceeding $7.75, €7.00, ¥48, and 0.29 Bitcoins. This represents a growth rate of over 22 percent in the past 24 hours. In the past week, Litecoin has gained over 79 percent against Bitcoin, 88 percent against the US dollar, and 90 percent against the Euro and the Chinese yuan. There are several reasons why this could be happening, and no one reason should be assumed to be fully responsible. Let us examine the most likely possibilities.

Pure speculation

Like all investments with a relatively small market cap and relatively low amount of liquidity, Litecoin attracts speculators who seek to profit off of pump-and-dump schemes. It also helps that financial regulators mostly turn a blind eye to cryptocurrencies at present, lessening the likelihood of legal troubles. Unlike lesser known altcoins with smaller market caps, Litecoin has enough users and size to make a bubble last for days or even weeks. This has happened before; in the price spike that occurred in the fourth quarter of 2013, Litecoin exchange rates surged as high as $55, €38.58, ¥253, and 0.06 Bitcoins.

Instability in Greece

As the situation in Greece continues to deteriorate, the government is tightening capital controls and may even attempt a bail-in where private funds are directly stolen from bank accounts to prop up the banking system, as occurred in Cyprus in 2013. Just as then, this has led affected citizens to look for safety, and cryptocurrencies are one avenue for this. Reuters reported that new customers depositing at least €50 with BTCGreece increased by 400 percent from May to June, and the average deposit increased by 300 percent in the same time period. While Coinbase is not available to Greek citizens, it is available in other financially troubled countries in the Eurozone, such as Italy, Portugal, and Spain. The number of new users of Coinbase in those countries has increased by 350 percent since the beginning of June, and average daily Bitcoin purchases have increased 250 percent in the first week of July.

Superiority to Bitcoin against spam attacks

On July 6-7, the Bitcoin blockchain was inundated with small, spam-like transactions that caused a backlog of transactions which delayed the processing of legitimate payments. Such a denial-of-service attack is made possible by the 1-megabyte cap on block size, which was originally intended to prevent denial-of-service attacks by means of sending an enormous “garbage block” that no one can process through the network. Litecoin suffered a similar attack in 2012, and Charlie Lee, its creator responded by implementing a sender fee for each instance of a small payment. In an interview with Coin Telegraph, he said of the incident, “I’ve fixed Litecoin to prevent this exact attack scenario three years ago, but at that time the Bitcoin devs did not agree with my fix and did not incorporate the fix into Bitcoin. …The fix implemented in Litecoin is just to charge the sender a fee for each tiny output he creates. For example, in this specific attack, the sender is charged one fee for sending to 34 tiny outputs of 0.00001 BTC. With the fix, that fee would be 34 times as much. So it would cost the attacker a lot more to perform the spam attack. The concept is fairly simple: the sender should pay for each tiny output he/she creates.”

Block halving

Like Bitcoin mining, Litecoin mining is set to unfold on a geometric series where half of the coins will be mined in roughly four years after its initial release, half of the remaining coins will be mined in roughly the next four years, and so on until all 84 million Litecoins are mined by the year 2150. (The year 2150 may be determined by noting that Bitcoin mining is to exhaust by the year 2140 and factoring in that Litecoin began two years later and will require two more four-year periods of mining than Bitcoin’s 21 million coin cap.) It is currently estimated that this block halving will occur on August 25, after which point Litecoin miners will only get half as many Litecoins for their efforts. All else being equal, halving the supply should double the price, and Litecoin exchange rates may be rising in anticipation of this event.

Via: http://www.examiner.com/article/an-explanation-of-litecoin-s-price-spike