If our 5 reasons to invest in Litecoin have convinced you to take a leap of faith this holiday season, you might also be wondering about price aspect of this altcoin.
Currently priced at $31.17 per unit, Litecoin is seeing some losses in terms of its market value.
However, that is not to say that the coin will not recover soon enough and win back the love of investors. So how does the price of Litecoin really work?
And what determines the market price of Litecoin?
Most importantly, what are the factors that lie behind setting a certain price that you have to pay when you decide to buy Litecoin from an exchange?
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In this article, we explore and explain the basic aspects involved in pricing of Litecoin.
It is to be noted that the determinants of Litecoin price are usually in tandem with the determinants influencing the prices of other crypto coins, unless they are stable coins.
Stablecoins, or crypto-based coins that are backed by or pegged to stable fiat currencies, tend to work a little differently when it comes to pricing.
Factors Determining Litecoin’s Price
In understanding the factors that underlie the pricing of Litecoin, we must fall back on one of the basic principles of economic theory: the law of demand and supply.
The law of demand and supply states that when the supply is low and the demand is high, all other things being equal, the price tends to rise and vice versa.
Keeping this definition and the logic of it in mind, let’s understand how this works in the crypto market:
1. Supply of Litecoin
The supply of Litecoin is fixed at 84 million. Now, there is a circulating number of cryptocurrencies that is currently there in the market.
Now, even beyond this circulating supply, you know that more Litecoins can be mined and introduced in the market. Litecoin Mining thus plays a crucial role in determining the supply.
Now, this supply aspect forms one part of the demand-supply graph that will eventually determine the price of Litecoin.
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2. Demand for Litecoin
Besides the supply, the number of people who actually want to acquire Litecoins also plays a crucial role in the pricing of the cryptocurrency. The meeting point of the demand and supply represents the market price of the said cryptocurrency.
How Is Price of Litecoin Determined At an Exchange?
When you try to buy or sell Litecoins at an exchange, you normally put up a buy order or sell advert. There, you mention the amount for which you are ready to sell a certain number of Litecoins.
Now, all these orders and sell offers are registered in an overbook. If you set a price that is too high, like $1000 for 10 Litecoins, the sell offer will remain unfulfilled.
People actually willing to trade will set their prices at a moderate value, that represents a meeting point between the supply (sell offers) and demand (buy orders). The market price or the price you pay here will be set on the basis of this consideration.
However, you must note that you might just have to pay a little more or less depending on your trade frequency on that exchange, your user status or tier on the exchange and so on.
Other Factors Determining Litecoin’s Price
The price of Litecoin at any given point of time will also be affected by speculation, media exposure, adoption levels (which also influences demand), mining difficulty, electricity usage during mining and so on. The cons and pros of Litecoin are many and they naturally do their bit in influencing its final price.
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