Tuur Demeester, prominent bitcoin analyst and investor, recently stated that the next Bitcoin Cash (BCH) sell-off will likely lead to an increase in demand toward Litecoin. He emphasized that over the past two years, Litecoin (LTC) has evolved into a real bitcoin hedge due to its activation of the Bitcoin Core development team’s transaction malleability fix and scaling solution Segregated Witness (SegWit).
“If BCH pump fails, money could roll into LTC, it being a real Bitcoin (BTC) hedge. I just invested some BCH profits into LTC. With “real Bitcoin hedge” I mean [that] Litecoin has SegWit and it will likely merge other cutting edge tech ahead of BTC,” Demeester explained.
Since the completion of the August 1 hard fork execution, BCH has struggled to demonstrate an increase in value and demand from investors. For weeks, it remained behind Ripple in terms of market cap and trading volume. However, as the daily trading volume of BCH drastically increased in Bithumb, the world’s largest cryptocurrency exchange based in South Korea, the value of BCH surged. In a period of three days, the price of BCH rose from $300 to $996, coming close to breaching the $1,000 mark.
On August 19, when BCH reached its all-time high price of $996 and a market cap of $16.4 billion, Demeester noted that a sell-off is imminent, mostly due to the abrupt increase in the value of BCH. More importantly, because the trading volume of BCH is heavily concentrated in one market that is South Korea, with Bithumb and Korbit processing 50 percent of global trades, Demeester explained that the BCH exchange market was not at all stable.
As Demeester predicted, the market cap of BCH decreased substantially from August 19 to 21, dropping by over $7 billion within a mere two-day span. BCH has recovered slightly since dipping below the $10 billion region and has since stabilized at $10.5 billion.
Due to its similarities to bitcoin in terms of structure, monetary policy and philosophy, Litecoin has been considered as a hedge investment tool against bitcoin’s volatility for awhile. Although the entire cryptocurrency market does fluctuate around bitcoin in most circumstances, Litecoin is one of the few cryptocurrencies that remain relatively stable amidst market volatility.
But, it is also important to note that the market for Litecoin is very similar to BCH. Like Bitcoin Cash, Litecoin’s trading volume is heavily centralized in Asia, especially in China. While the vast majority of BCH trading is facilitated through South Korea’s two largest bitcoin exchanges, a significant portion of its trading volume originates from China, simply because all of the Chinese bitcoin exchange market’s largest exchanges by volume have been supporting BCH trading.
Hence, if the market and investors feel less confident in the ability of BCH to rally past its early stages and increase in value over time, there exists a high probability that traders would simply switch over to Litecoin as hedge against bitcoin and BCH. In South Korea, it is also likely that investors would sell their BCH and move to Ethereum, as it also is the largest exchange market for Ether (ETH).
BCH has been incredibly volatile in terms of market cap and price due to controversy surrounding ViaBTC, Bitmain and the recent hard fork announcement of the SegWit2x consortium of companies and miners.
Last modified: May 21, 2020 9:36 AM UTC