First let's look at a historical chart of LTC and BTC transactions:
In 2017, Litecoin transactions were only at 1% of Bitcoin transactions. So for every 1 transaction on the LTC network, there were 100 on the BTC network. From March of 2017 until Sep of 2017 LTC transactions rose to around 10% of BTC transactions, and in the final months of the bull market from Oct. of 2017 through Dec. of 2017 LTC reached a high of around 50% of BTC transactions.
Throughout the bear market from Jan. 2018 until March 2020, LTC transactions hovered at around 10% of BTC transactions which is where they were at during the middle part of the crypto bull market. From the start of our crypto bull market in April 2020 to May 2021 LTC transactions reached about 50% of BTC transactions which is equal to the late stage of the 2017 Bull Market.
Over the last year during our consolidation phase in the crypto markets (May 2021 - March 2022) LTC transactions remained at around 50% of BTC transactions. If this trend is to continue we should see our final parabolic stage of the crypto bull market which would lead to LTC surpassing BTC in total number of transactions. It is reasonable to expect LTC blocks to become full which would lead to around 1.2M transactions or 4 times that of BTC.
The reason for the increase in LTC transactions during BTC bull markets is because BTC blocks become full, so the excess transactional demand moves to LTC as shown below:
Now how will this relate to price action?
There are a couple of variables to consider but let's keep our focus on total transactions.
At the start of 2017 we were at around 3,000 transactions per day, and at the late stages of the 2017 bull market we peaked at around 150,000-200,000 transactions per day. This is very close to an increase of around 100x. Price of LTC also rose by around 100x during this time, so there is a correlation to number of transactions and price.
During the bear market we hovered around 20,000 transactions/day and have been consolidating around the 120,000/day. I just stated above that I believe it's likely for LTC blocks to become full in this late stage of the bull market which would take LTC transactions to around 1.2 million transactions/day, and that's befrore the additional capacity we'll see once MWEB is live. For now, I'm unsure as to how much additional transactional capacity/byte MWEB will yield so for the purpose of this analysis we'll ignore it for now. So, if we see full blocks on LTC, we'll see around a 100x increase in total transactions from the bear market lows. If this occurs, will we see another 100x increase in price from our bull market starting price of around $40?
The next factor we need to consider is the average transaction value. If avg. transaction values continue to move up alongside the total number of transactions taking place per day, then we should use that as a multiple to determine the value of the network. The value of the network should equal the number of transactions/time * avg value/transaction.
So, if the number of participants on the network can increase by 100x from our bear market lows which would fill LTC blocks to capacity, but we also increase the avg. transaction values by a factor of 2x, then we should see a price increase of 200x. You see where this can take us?
As the LTC network continues to be monetized underneath the BTC network the negative trade-offs from using BTC over LTC will dwindle. In other words, the premium for blockspace on BTC should lessen over time as the LTC network expands and becomes more secure. This should ultimately result in users arbitraging between the two networks trading security for cost. Users who are transacting on the BTC network and are paying high fee premiums may not need all that security, and since LTC security is increasing it will make sense for some to migrate.
Because LTC still has about 1/4 the total block size it has a lot of room to grow before it needs to worry about centralization risks. BTC blockchain size is at 462 GB while LTC is at 79 GB, a difference of 383 GB. So how long will it take LTC to catch up in total block size to BTC assuming full blocks? Well, since LTC has 4x the block size limit because blocks are produced 4x faster, we get 3 more MB every 10 minutes, 18 more MB every hour on LTC, and 432 extra MB every day.
So how many days would it take for LTC to make up that 383 GB difference? Well there are 1,000 MB in a GB making the difference in MB 383,000. We divide that 383,000 by 432 MB extra on LTC per day and get 886.57 days. This is about 2 and a half (2.43) years before LTC would reach an equivelant block size as BTC.
So what does this mean? Well it is very possible that because of this arbitrage dynamic, security cost on both networks will become equal to one another, and thus average transaction values would become equal as well. BUT, because LTC is doing 4 times the number of total transactions LTC market cap would be 4 times higher than the BTC market cap. This means 1 LTC = 1 BTC.
Many will think this is very unlikely to happen but remember decentralization is not sacrificed until 2.5 years into the future, so if demand increases rapidly for the BTC/LTC security model, this type of price action is likely to occur.
Let me know what you guys think about this idea and what I'm missing.
Thanks for reading!