I often hear people use the analogy of gold and silver when describing the economic role envisioned for an alt-coin such as litecoin. I decided to use this analogy to calculate a fair price for litecoin assuming this was true.
World gold and silver reserves are estimated at 171,000 tonnes and 530,000 tonnes, respectively. The current market price for gold is $43,000 per kg, and $670 per kg for silver. This gives "market caps" of:
GOLD: (171 x 10^6 kg) x ($43,000 / kg) = $7.4 trillion
SILVER: (530 x 10^6 kg) x ($670 / kg) = $355 billion
The ratio of the dollar value of the world's gold supply to the world's silver supply is:
GOLD/SILVER RATIO: ($7.4 x 10^12) / ($355 x 10^9) = 20.8.
According to these estimates and calculations, the world's gold supply is 20.8 times more valuable than the world's silver supply.
According to http://coinmarketcap.com, the "market caps" of bitcoin and litecoin are:
BITCOIN: $8 billion
LITECOIN: $0.43 billion
With a ratio of:
BITCOIN/LITECOIN RATIO: ($8 x 10^9) / ($0.43 x 10^9) = 18.6.
The world's bitcoin supply is 18.6 times more valuable than the world's litecoin supply. This suggests that litecoin is only slightly overpriced, assuming the analogy to the economic roles between gold and silver hold.
The fair price for litecoin, according to the "litecoin is the silver to bitcoin's gold" talking point is:
CURRENT LTC PRICE: 0.025 BTC
OVERVALUATION BASED ON GOLD/SILVER RATIO: 20.8/18.6 = 1.1
FAIR LTC PRICE: 0.025 BTC / 1.1 = 0.023 BTC
I am not suggesting that I think Litecoin is actually fairly valued, but I thought this was an interesting calculation.
