Bitcoin and Litecoin are some of the most prominent cryptocurrencies in the market. Also, their shared history makes somewhat them related to each other to some extent, especially considering the case of LTC. It is also common knowledge that both tend to take some innovative features from each other pretty often. But this relationship does not end there, even their price movements most of the time are interrelated, making them one of the most ideal investment pairs in the crypto world.
This article will explore the relationship between the two most prominent cryptos and how you can benefit from this relationship.
Bitcoin & Litecoin: Two Sides of the Same Coin
Bitcoin is the world’s first cryptocurrency introduced as a global payment system alternative to the traditional financial system. The coin was introduced to the general public in 2008 by a developer, who goes by the pseudonym of Satoshi Nakamoto. From there, the coin rose in the market and is currently one of the richest commodities in the world with a net value of $104K per BTC as of 25th January 2025.
Litecoin on the other hand is developed by Charlie Lee from a fork in Bitcoin’s blockchain. The coin was first introduced in 2011 with the aim of bringing decentralization to the crypto-mining sector. The LTC blockchain performs almost all the same functions as Bitcoin but uses different algorithms to make this happen. Litecoin is currently ranked #19 in the market with a net value of 118.65 per LTC.
Bitcoin & Litecoin: Asymmetrical Correlation
The “asymmetrical correlation” concerning cryptocurrency means that positive news or events surrounding one coin can result in a different effect on the other one when compared to negative news or events. This means that a negative shock can cause a bigger dip than a bull run caused by a positive shock.
For instance, if we take a Non-Linear Autoregressive Distributed Lag (NARDL) approach, we will find that the Bitcoin price can affect the market value of Litecoin in the short-term run. This is somewhat the same for all cryptocurrencies. This could benefit potential investors if they learn how to use it to their advantage.
As for the long run, this asymmetrical correlation doesn’t stand. There is also the fact that even if LTC won’t react to LTC’s positive events, it is closely tied to the negative influence of the original crypto, meaning that whenever BTC dips even in the long term, LTC and other cryptos follow suit.
Why Does This Asymmetrical Relation Exist?
As Litecoin grew in the crypto market, it closely followed the path of the original crypto. In time, investors start to slowly treat this growing closure as a way to profit off the market. So, whenever, they saw a spike in the original cryptocurrency, they tended to put their capital on the other altcoins, especially Litecoin.
This growing demand for LTC, whenever Bitcoin spiked, allowed it to follow the same way as its predecessor. The same can be said for the reverse effect as well. That is, when BTC loses its value, investors will start selling LTC to retain their profits. In time, this has become normal practice in the crypto market and resulted in the creation of an asymmetrical bond between the two crypto.
Bitcoin & Litecoin Price Correlation: Current Market Analysis
This market sentiment and price influencing has deeply tied these two prominent coins together until the end of 2022. From there, the price of LTC and BTC’s correlation and surge ratio started to diverge. The correlation factor between Bitcoin and Litecoin within the last three months is 0.77.
This correlation between the prices determines the relative statistical degrees to which these two crypto assets tend to move together with their value in the range of 1 to -1, zero being no correlation between them. With Trump’s election and his “pro-Bitcoin” stance, it is expected that Bitcoin will comparatively surge than LTC.
Final Remarks: Boosting Your ROI
Based on the above correlation metrics and 90-day trading horizon, Litecoin is expected to generate over 1.5 times the return on investment compared to Bitcoin. But when taking the historical volatility into account, Litecoin is riskier than the original currency, and by a margin of 2.13 times. It trades over 0.05 less of its potential returns per unit of risk than Bitcoin, whose return per unit risk is 0.19.
This correlation can give rise to a big opportunity in the market, especially for those who employ the pair trading strategy. By using this strategy you can buy one security (long-term) and sell another security (short-term) to gain profit. For further market updates and interesting info surrounding the crypto market, stay tuned.
