Litecoin is experiencing its biggest price slump ever.
When the altcoin went mainstream, litecoin closely followed bitcoin's sometimes extreme price swings, peaking at $40 in late 2013, soon after bitcoin passed the $1,000 mark.
However, in less than two months, litecoin has lost that close relationship with its golden sibling, prompting community members and some industry leaders to question litecoin's viability.
Barry Silbert, Founder and CEO of SecondMarket, recently posted the following tweet raising the issue:
Litecoin price appears to be decoupling from bitcoin. Money rotating out of Litecoin to bitcoin and other alts? http://t.co/iabRcLqTmz
-- Barry Silbert (@barrysilbert) June 30, 2014
Silver to bitcoin's gold no longer
CoinDesk examined the way litecoin behaved during the bitcoin slump last December and concluded that it appeared to be practically pegged to bitcoin. In fact, since most exchanges offered only LTC/BTC conversion at the time, it effectively was.
However, bitcoin started recovering this April, while litecoin did not, staying flat and trading in the $9-$12 range.
The first half of May saw an unusual period of stability for both currencies, but bitcoin again started rallying in the second half of the month. Litecoin was left behind, hovering around the $10 mark and then dropping to single digits in mid June.
The negative trend continued throughout June and finally worsened this week, experiencing a big slump on 1st July. At press time, litecoin was down 10.1% in just 24 hours. Trading volumes remain low compared to six months ago, but they are creeping up as the price tanks.
To all intents and purposes, litecoin is on its own, having lost its relationship with bitcoin, and, worse, it is obviously in trouble.
Scrypt miners arrive
The advent of powerful scrypt ASIC miners has raised additional concerns in the litecoin community. The first scrypt ASICs are now starting to appear and the biggest names in the industry are set to join the fray.
KnCMiner's Titan is a good example. The chip has already taped out and the first batch is expected to ship sometime in the third quarter of this year.
The Titan can deliver up to 400MH/s, which means it is as powerful as 400 high-end Radeon GPUs (graphic processor units) of the sort found in gaming PCs. Alpha Technology is promising 250MH/s out of its Viper scrypt miner.
Both cost about $10,000, which gives them an advantage over GPU miners in terms ROI, or dollars per MH/s. The difference is even bigger when efficiency is factored into the equation, as GPU miners waste a lot more energy.
We can only speculate on the number of scrypt ASIC miners bound to join the litecoin network over the next few months, but their effect is likely to be be substantial nonetheless.
Earlier this year KnC said it was planning to build and sell as many as 2,500 Titans in the first production run. The company confirmed it had $2m worth of pre-orders earlier this year.
ROI in trouble?
The biggest problem is the sheer lack of money in litecoin and that other popular alternative cryptocurrency dogecoin.
The combined market cap of the two most popular scrypt altcoins is about $250m, yet KnCMiner was hoping to sell 2,500 Titan miners at $10,000 apiece - and that's just the first batch of such miners, from a single company.
In other words, if it shipped today, a single batch of KnC's scrypt miners would cost $25m - roughly 10% of the combined market cap of litecoin and dogecoin.
A glance at those figures reveals that this level of investment in scrypt mining hardware will be hard to justify and maintain in the long run.
Additionally, the added hashing power these miners will bring is likely to further impact prices of scrypt-based altcoins in the near future.
Chart via CryptoCoin Charts