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The Relationship Between Bitcoin and Litecoin: Litecoin Price Increases With Bitcoin Price

Updated on January 8, 2018
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Introduction

Cryptocurrencies are a decentralized digital currency, or digital asset, that use cryptography to secure transactions, control supply, and verify the transfer of funds, which operate independently of centralized financial and government entities. A couple of popular cryptocurrencies are Bitcoin (BTC), Litecoin (LTC), and Ethereum (ETH).

Recently there has been a lot of hype about Bitcoin, as prices rose from $985.56 at the start of 2017 to $17,549.67 (an increase of 1680.68%) by the end of the year. This price surge is why Bitcoin has been dubbed the "gold" of cryptocurrencies. As of this article, one Bitcoin is worth $16,822.78.

Litecoin is another cryptocurrency that has recently been in the spotlight. With price surges of $4.51 at the start of 2017 to $217.19 by the end of the year (a 4715.74% increase), it is often referred to as the "silver" to Bitcoin's gold. Litecoin's success is often attributed to the success of Bitcoin in the last few years. However, there is no hard evidence of this. In this article, I mathematically test for the association between prices in Bitcoin and Litecoin.

Price of Bitcoin and Litecoin

Price of Bitcoin, all time.
Price of Bitcoin, all time. | Source
Price of Litecoin, all time.
Price of Litecoin, all time. | Source

Procedure

I collected data on Bitcoin and Litecoin prices via Coinbase, a digital currency exchange. I checked the prices of each cryptocurrency per week for the last year, starting on 12/22/16 and ending on 12/14/17. This allowed me to collect a large enough sample size for Bitcoin (N = 52) and Litecoin (N = 52). I entered this data into a statistical software program called the Statistical Package for the Social Sciences (SPSS).

Data collection: Bitcoin and Litecoin prices

Week 1 - 26.
Week 1 - 26.
Week 27 - 52.
Week 27 - 52.

Hypothesis and testing

My hypothesis is that prices in Bitcoin will be significantly and positively associated with prices in Litecoin. Meaning that as Bitcoin price increases, Litecoin price increases. I tested this hypothesis using a one-tailed bi-variate correlation.

Summary statistics

Descriptive statistics of the price in Bitcoin and Litecoin with means and standard deviations.
Descriptive statistics of the price in Bitcoin and Litecoin with means and standard deviations.
Bi-variate correlation between prices in Bitcoin and Litecoin.
Bi-variate correlation between prices in Bitcoin and Litecoin.

Results

As hypothesized, Bitcoin prices were significantly and positively correlated to prices in Litecoin, r(50) = .883, p < .001. This is a very strong relationship between Bitcoin price and Litecoin price. This relationship suggests that as price in Bitcoin increases, price in Litecoin also increases.

Discussion

In this article, I tested the relationship between Bitcoin price and Litecoin price. The aim of this article was to provide hard evidence that Litecoin's success is associated with Bitcoin's success. This means that as the price of Bitcoin rises, the price of Litecoin also rises. However, I must warn that correlation does not equal causation. This means that rising prices in Bitcoin does not cause increases in the price of Litecoin. Correlation only tests for associations, not causation.

In this sample, the price of Bitcoin accounts for 77.97% of the change in Litecoin's price, which is a significant amount. This leaves 22.03% of Litecoin's change in price unexplained.

The unexplained change in Litecoin's price might be associated with other factors, including increased confidence and acceptance of cryptocurrency in the general population, analogies between Bitcoin as digital gold and Litecoin as digital silver, increased accessibility to cryptocurrency with apps such as Coinbase, Binance, and Bittrex, and/or increased media sensationalization of cryptocurrencies.

These factors are more difficult to collect data for, as I would need to collect data from real people via surveys to assess how these factors influence perceptions, attitudes, and use of cryptocurrencies. In this article, data collections was rather straightforward because all I had to do was collect the data from an online source available to anyone, enter it in the statistical software program, and run the analysis.

Future research might assess how these other factors are associated to the price in cryptocurrencies such as Bitcoin and Litecoin and/or how they influence peoples' perceptions, attitudes, and use of cryptocurrencies. Perhaps, future research might explore the relationship between Bitcoin price and the price of other cryptocurrencies, such as Ethereum, Ripple, or TRON. Lastly, the present study could be expanded to include all the data points for Bitcoin and Litecoin (i.e., since their creation; 2009 and 2011, respectively), rather than data only from the previous year.

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