Are you not aware that a large amount of the improvements to Bitcoin actually COME FROM Litecoin's developers? Warren and Charles have been contributing to Bitcoin development for years. To say that Litecoin merely copies Bitcoin features is erroneous.
To say a large amount of the improvements made to Bitcoin over the years have come largely from Litecoin developers is a rediuclous statement. I'm well aware they have made a couple security and efficiency improvements, however those improvements are dwarfed when you look at all the improvements that have been made on Bitcoin since Litecoin's inception.
It isn't about difficulty. It's about investment. The smart money always follows the money...and the amount of money being poured into dedicated hardware for Litecoin infrastructure right now is very significant. There are a lot of reasons for it, from miners hoarding until it's profitable to increased media exposure attracted to growth, venture capital investments, etc...
As for your comment about Bitcoin's network effect...it is Litecoin's network effect that has kept it in the #2 spot for so long and nobody is even close to dethroning it. So you can't have your cake and eat it, too - Bitcoin has a network effect, true...but so does Litecoin.
Smart money blindly follows people like sheep just because others have done the same before them? That doesn't sound like smart money to me. Some of the more innovative coins lately have been purely PoS with no mining involved. To say that Litecoin will remain #2 because of all the money pouring in for mining hardware is again a fallacy. There are other crypto currency networks that are more secure than Litecoin due to using different methods of PoS and PoW, sometimes combining the two to exemplify the matter. Furthermore, the mining hardware being made for Litecoin is Scrypt mining hardware, not Litecoin mining hardware. Most people only care about profit and throw them on a multi pool of some sort as it makes them more money. If there weren't a million other Scrypt coins that people could also mine with Scrypt ASICs, then it might not of made sense to make one just yet.
I agree Litecoin has it's own network effect, however it is not nearly as strong as Bitcoin's network effect. Search Bitcoin in Google news and tell me how many articles pop up, then search for Litecoin. You don't even need to tell me the answer, because I already know that there will be much less articles about Litecoin. As I believe I said in the OP, it is Bitcoin that is in the news all day everyday, not Litecoin. Litecoin has a small network effect that is somewhat limited within people engaged in the crypto currency community, however Bitcoin's network effect stretches much wider than that. Since Litecoin's network effect is limited somewhat to people engaged in the community, they are more likely to look at Litecoin for what it is.. Bitcoin with a few changed parameters.
The reason for the sharp decline in Litecoin's price relative to Bitcoin can be marked with a giant flashing neon arrow at the first couple weeks of May, when the Innosilicon A2 Terminator 80Mh/s systems started shipping. This gave a small group of miners an outsized share of the block rewards, due to the huge proportion of hashing power they added to the network. They proceeded to dump their coin (presumably in a mad dash toward ROI before competitors came on the scene) and miners, not always being the most educated on the dynamics of markets, were content to just keep dumping into weakness. This was combined with a strong rally in Bitcoin, which traditionally sees investment capital leave Litecoin into Bitcoin, to take advantage of the move up. Recently the ratio took a jump in Litecoin's favor when the rally petered out.
Once ASIC hardware takes over the network and it reaches a relative equilibrium of hashrate ownership close to what it had when it was GPU-driven, the dumping mentality should not be as pronounced. You are just failing to observe the reasons for the drop and you aren't seeing that the money that's being poured into Litecoin infrastructure (regardless of how much fiat capital is in it) is actually a giant vote of confidence, and people should be following that money.
I wouldn't be so sure that Innosilicon was the only reason for the decline in price, in fact I am sure that is not the only reason. The fact of the matter is that we can only speculate to the reason, however I feel that the market sentiment has changed over the past 6 months. Six months ago if you asked me if Litecoin would be the #2 currency in two years, I would have told you yes. Now, six months later, that decision is not so easy anymore and the market is reflecting that.
Again... the money flowing into ASIC hardware argument is flawed because some of the most innovative coins coming out don't even need mining hardware to secure their block chains. It was estimated in December that the Bitcoin network uses $15 million dollars in electricity everyday. If you can't see the value in PoW alternatives, then you must hate planet earth. The money being poured into ASICs are just smart people (ASIC manufacturers) trying to make a buck off of less smart people (ASIC buyers.) Nothing more, nothing less. If these magic money machines actually made any money at all, why wouldn't they just keep them? I realize from experience it is tough to scale a mining operation, however most of these ASIC manufacturers just want FIAT/BTC. They are not making Scrypt ASICs to support Litecoin, they are doing it to make money.
I'm not convinced of that. Satoshi cut all ties and disappeared the instant that Gavin Andresen said he was meeting with the CIA about Bitcoin. He hasn't had a thing to do with it since, hasn't been an advocate of it, has not come out of hiding except to say that he is NOT Dorian Nakamoto. A guy like that, who takes such pains to ensure his privacy and who has divested himself of all relationships related to Bitcoin, doesn't strike me as particularly trustworthy. I'm not going to put my faith in the assurances of some random person who cannot possibly know Satoshi's mind or intentions.
I wouldn't suggest you take my word for that either. I propose you go and read through Satoshi's posts on these forums and come to that conclusion yourself. Furthermore, if he hasn't touched the coins yet.. which were worth about 1,000,000,000 dollars at Bitcoin's peak in December, then I doubt he will ever touch them. If he was going to dump, then 1 billion dollars would be quite tempting. Satoshi must have balls of steel if he is planning on dumping and hasn't yet. One more thing.. if Satoshi dumps then it will likely get out who he is, and as you can tell he doesn't want that to happen.