As bitcoin continues to climb to record highs, reaching as high as $1,141 on Bitstamp, it is joined in growth by a number of alternative digital currencies. The most visible has been litecoin, which has returned to what might be considered a normal trading range relative to bitcoin. Litecoin is not alone in its gains, with others like Peercoin and Namecoin making similar gains.
The rise of litecoin has made numerous headlines over the past week, surprising many with its meteoric gains and crossing of one billion dollars of market capitalization. Yet, the dynamics in which it is actually traded are often overlooked, particularly its relationship to bitcoin. On BTC-e, the leading litecoin exchange by volume, the bitcoin-litecoin currency pair is traded with as much or more volume as litecoin-dollar. It also regularly dictates movement as visible through a series of technical factors.
As we noted in August, litecoin and bitcoin are beginning to show signs of trading in a manner similar to gold and silver. In particular, maintenance of a banded price ratio is a dynamic well known to the precious metals and once again proving its potential applicability to digital currencies. While the original research on the matter explains in more detail, those watching the ratio may well consider the latest litecoin-dollar gains to be an expected correction. Having fallen out of range amid bitcoin’s 800% climb in the past month, it has since normalized.
Not to be overlooked is Peercoin (PPC), an altcoin that utilizes an alternative mining implementation based not only on bitcoin’s proof-of-work scheme, but also a proof-of-stake. The proof-of-stake system distributes new coins based on holdings rather than just finding correct hashes. While PPC / BTC remains the dominant currency pair for the altcoin so far, PPC / USD was recently added on BTC-e, leading to a massive jump in its exchange rate.