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Since Bitcoin’s launch, over 5000 alternative cryptocurrencies have entered the market, each hoping to follow in the footsteps of Bitcoin and its next major competitor, Ethereum. But the top ten hold 88% of the overall market capitalization, and it seems that even the top ten will have difficulty breaking the hold Bitcoin and Ethereum have on the market.

Litecoin, at one point the sixth-largest cryptocurrency by market cap, is a prime example of initial promise followed by failure to deliver. Litecoin’s position has declined substantially, now ranking outside the top ten for the first time in more than a decade. Let’s take a look at Litecoin’s prospects and some of the challenges it faces in becoming a larger player in the cryptocurrency market.

How Litecoin Differs From Bitcoin

Litecoin originally positioned itself as the silver alternative to Bitcoin’s status as the gold standard of cryptocurrency. And while it has grown significantly since 2011, Litecoin remains well behind Bitcoin, with a market capitalization of only about 1.5% of Bitcoin’s market cap. By comparison, Ethereum’s market cap is about 40% of Bitcoin’s, putting it at number two.

While Litecoin and Bitcoin have similar foundational principles, there are notable differences starting with the number of potentially available coins. Bitcoin has an upper limit of 21 million coins, nearly 19 million of which are circulating, although about 20% are permanently lost. Litecoin, on the other hand, has a potential supply of 84 million coins, with not quite 67 million in circulation.

Why does the number of coins matter? The more coins available, the more likely values will be in whole numbers. This gives Litecoin a presumed psychological advantage with investors who want to deal in whole numbers. However, this hasn’t improved Litecoin’s competitive position in the ten years since its founding.

Litecoin and Bitcoin also employ different cryptographic algorithms, with Litecoin applying the Scrypt algorithm while Bitcoin uses SHA-256. Most people who have any familiarity with cryptocurrencies are aware of the various issues surrounding Bitcoin mining, from massive energy consumption to the fact that custom Bitcoin mining rigs are far out of reach of the typical investor. These issues flow from the complexity of the SHA-256 algorithm.

Scrypt is simpler, although less powerful. But it allows Litecoin owners to mine from their own machines rather than having to invest in expensive, liquid-cooled mining rigs or join mining pools. And this potentially makes Litecoin more attractive to the everyday crypto investor.

The Problems Facing Litecoin

There are presently several issues for cryptocurrencies in general, including Bitcoin. But they will disproportionately affect other cryptocurrencies, especially those like Litecoin which are not in the top ten.

The Regulation Battle

Governments have a difficult relationship with cryptocurrencies because, unlike fiat currencies, they don’t control them. They view that lack of control as a threat to their economic policy and well-being. Despite this, there has been little-to-no regulation of cryptocurrencies or cryptocurrency markets. But world governments are starting to take steps to rein in cryptos.

In 2014, the IRS determined that cryptocurrencies should be subject to capital gains taxes, just like other investments. Taxes on cryptocurrency transactions will discourage cryptocurrency investment because, as the rewards diminish, investors will be less tolerant of cryptocurrency risks. As a result, coins like Litecoin that haven’t shown the strength of Bitcoin will suffer.

Expect that governments will become even more aggressive in their attempts to control and regulate the crypto markets. The more successful they are in doing so, the worse the news for Litecoin.

Lack Of Acceptance Of Cryptocurrencies

Despite their promise, cryptocurrencies have yet to achieve widespread acceptance as payment options, even though Bitcoin continues to roll out ATMs and make arrangements with companies like PayPal. And with companies like Tesla backtracking on promises that they would accept Bitcoin for payment, cryptocurrencies will continue to struggle to gain a foothold in the global payments market.

Without a real utility for Litecoin as a viable payment solution, it will continue to fade into the growing host of competitor coins, many of whom also have speed and transaction cost advantages over Bitcoin.

Investors Are Going To Start Spending Again Soon

Part of the increase in crypto trading in the past year is attributable to the lack of consumer spending during government-mandated lockdowns. Many consumers redirected those unspent dollars, euros, and yen to the crypto markets, with some countries taking great leaps to legitimize cryptocurrencies.

Crypto trading will continue to increase. According to online marketer and trader Gary Stevens of Hosting Canada, day trading remains an attractive option for many people due to its inherent high risk but high reward appeal:

“Online trading is a prime attraction because it provides both a high-risk and high-reward proposition, which appeals to the temperament of most day traders,” says Stevens. Particularly with the introduction of decentralized finance allowing investors to earn interest on their crypto holdings, investors have many reasons to continue investing in cryptocurrency.

But as economies reopen and international travel resumes, some people will start shifting money away from investments and back to discretionary spending. As they do, Litecoin’s value will likely continue to fall.

Cryptocurrencies? Maybe. Litecoin? No.

If you are convinced that cryptocurrencies are the future - the jury is still out on that question - and you can stomach the volatility of the crypto markets, you may be able to make substantial gains with crypto investments. But Litecoin is heading the wrong direction, and its weaknesses mean other cryptos are more attractive investments for their increasing legitimacy and growth.