Summary Litecoin is an alternative cryptocurrency that has underperformed Bitcoin over the last several months. Grayscale's Litecoin Investment Trust has seen a surge in demand bring the trust's price from a NAV discount to a NAV premium in recent sessions. I'm bullish LTC, but I believe LTCN may underperform the underlying due to the larger AUM compared to Grayscale funds like GSOL or FILG. The cryptocurrency market has been enjoying a robust rally since mid to late-October that has taken Bitcoin ( BTC-USD ) from $26k per coin to over $37k per coin with very little pullback. Much of this recent surge is likely from excitement surrounding the potential for a spot Bitcoin ETF approval in the United States. This excitement has led to the NAV discount arbitrage in Grayscale's Bitcoin Trust ( GBTC ) grinding higher all year from a low of close to 50% to just over 10% now: Data by YCharts Unlike during Bitcoin's regional banking crisis-related price surge back in March, this time the rally is being observed more broadly and many of the alt coins like Solana ( SOL-USD ) and ChainLink ( LINK-USD ) have outperformed BTC over the last month or so. Data by YCharts One altcoin that hasn't yet doubled from September lows is Litecoin ( LTC-USD ). In this article, we'll revisit some of the indicators that I have historically liked for the native asset itself. And we'll get into what I currently think about the Grayscale Litecoin Trust ( LTCN ). I'm Bullish Litecoin There is definitely some disagreement about longing Litecoin within the broader cryptocurrency ecosystem, but I've generally held the view that it's an underappreciated coin. LTC has been characterized as a "dinosaur coin" that doesn't solve a problem but I disagree. Structurally, it's very similar to Bitcoin. It utilizes a proof of work consensus mechanism that requires a network of decentralized miners for transaction validation. Hash Distribution (IntoTheBlock) The distribution of that mining hash power is very similar to that of Bitcoin. There are big players and there are smaller operators. However, at 29.9% of hash rate distribution in a single mining pool, Litecoin is actually less reliant on its top mining pool than Bitcoin is. And as far as proof of work chains go, Litecoin is the only one that has been a worthy competitor to Bitcoin from a daily active user standpoint over the last few years: Active Addresses (CoinMetrics) During times of high fees on the Bitcoin network like what we witnessed back in May , crypto users have looked to Litecoin as a complimentary network when transaction prices get too high. I'm of the view that transactions will ultimately have to stay higher than current levels for Bitcoin miners longer term for mining to remain an economically viable business as the block reward diminishes over time. 90 Day NVT (CoinMetrics) Finally from a pure valuation standpoint, Litecoin is cheaper than every other PoW payment cryptocurrency network outside of ZCash ( ZEC-USD ) based on the 90 day NVT ratio average. Where most of these coins have 90 day NVT ratios near or above 200, LTC is still below 100. This metric aims to assign a valuation multiple for each network that utilizes a coin's market cap and the amount of value that is transacted over the network over a rolling 90 day period. As has been the case for the better part of a year, LTC's NVT ratio has been well below that of Bitcoin, Dogecoin ( DOGE-USD ), and Dash ( DASH-USD ). LTCN Is Now Expensive Grayscale is the largest digital asset manager in the public markets with roughly $30 billion in AUM spread out over more than a dozen single asset funds. These funds have been one of the best ways to trade cryptocurrencies through a tax-advantaged investment account. The tradeoff for easy access to crypto exposure through a traditional brokerage has been high fees and occasionally even illiquidity. Each of these things have likely contributed to what can be wild swings in NAV premium/discount pricing. The fact that these trust shares have traded at a discount to net asset value over the last two years has been well covered by myself and other analysts on Seeking Alpha. The smaller funds have notoriously been extremely volatile. I covered this last year when Grayscale's Filecoin Investment Trust ( FILG ) traded at a nonsensical 175% premium to NAV. We're seeing this happening again in that fund and in Grayscale's Solana Trust ( GSOL ) - which is currently trading at a preposterous 880% premium and is almost certainly going to end badly for GSOL holders who are buying that fund today. LTCN NAV Premium Rate (CoinGlass) What we haven't seen in the last two years is the larger funds trading at premiums to NAV but we're starting to see that now. As of November 10th, LTCN shares trade at a 7% premium to NAV. This is after trading at a NAV discount as deep as 60% last December. At $109 million in AUM, LTCN is Grayscale's fourth largest single asset fund and it's the only fund in the top 4 that is trading at a premium. Furthermore, there are smaller Grayscale funds that still trade at a discount. I think there are two ways to look at this. On one hand, it seems as though traditional investors are attempting to front run a move in LTC that hasn't happened yet. On the other, a prudent investor who is bullish Litecoin might be wise to rotate out of LTCN and instead buy LTC through a crypto-IRA account like those offered by a company like iTrustCapital. Risks The main risk with holding any cryptocurrency is the perceived volatility against fiat currencies. These assets can whipsaw 30-40% in a very short amount of time and the lower you go down the crypto market cap rankings the more aggressive those swings can be. There is added risk with longing cryptocurrency trusts because they introduce counterparty risk to assets that are designed specifically to not require custodian counterparties. Given the amount of uncertainty regarding Grayscale's parent company Digital Currency Group, I think it's prudent to take proper precautions when getting exposure to Grayscale funds. Mainly, don't get overexposed. Related parties often own large percentages of the Grayscale shares outstanding and any forced liquidations from those related parties could depress NAV discounts if the market for the fund shares weakens. Summary I still really like Litecoin for many of the same reasons that I have laid out over the last 12 to 18 months. Functionally, it's a useful currency with a hard cap on supply and a robust user base compared to other proof of work blockchain networks. I largely view Litecoin as the silver to Bitcoin's gold. This has been a comparison that has been made for several years but I believe there is some credence to the idea. Litecoin has many of the same characteristics that make Bitcoin so valuable but the network can be utilized at a much cheaper cost to transact for the user. I think investors who want tax-advantaged ways to trade cryptocurrency proxies and derivatives would be wise to have both standard IRAs that support Grayscale fund trading and crypto-specific IRAs that offer trading in the underlying assets more directly. With this dual-account approach, investors can maintain desired exposure levels to digital assets while opportunistically buying and selling the Grayscale funds depending on the premium/discount rate. While I have traded the Grayscale Litecoin Trust shares many times in the past, it's not a fund that I currently hold because the NAV arbitrage has flipped to favor sellers. However, because I do think Litecoin itself has plenty of room to run higher, I'll rate LTCN a hold with the caveat that it will likely underperform the underlying asset from here due to the NAV premium.
