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Litecoin Price Analysis – Bullish trend metrics

Technicals for the LTC/USD pair reveal bullish trend metrics with the spot price above both the 200-day EMA and daily Cloud.

The Litecoin (LTC) spot price is now up 96% since the block reward halving in August 2019, and down 48% from the record high set in December 2017. The LTC market cap is currently 7th on the BraveNewCoin market cap table at US$12.55 billion, with US$3.05 billion in exchange-traded volume over the past 24 hours.

Litecoin Price Analysis 12 Feb 2021 (1)

LTC is a Bitcoin (BTC) fork created by Charlie Lee in 2011. The network has a target block time of two minutes and 30 seconds, as opposed to 10 minutes for BTC. LTC also has a four-fold increase in the maximum total supply, and uses a different Proof of Work consensus algorithm called Scrypt.

Litecoin Price Analysis 12 Feb 2021 (2)
Source: BitInfoCharts

Charlie Lee is a former Google employee and the brother of Bobby Lee, CEO of the now-closed Chinese cryptocurrency exchange BTCC. Lee worked as an engineer at Coinbase from 2013 to 2017, where he was instrumental in spearheading the company’s LTC listing.

Despite selling all of his personal LTC holdings in December 2017, Lee continues to be involved in the development process and attempts to increase adoption through the Litecoin Foundation, a non-profit registered in Singapore. The second-ever Litecoin summit occurred in Las Vegas at the end of October 2019, which was headlined by Ron Paul.

Seven partnerships established by the Foundation include; Cred, BlockFi, BitGo, Glory kickboxing, the Miami Dolphins professional football team, the San Diego Film Festival, and Flexa, which added LTC as a method of payment for its 39,000+ merchant network. Previous partnerships include the Bibox exchange and Ternio, which is set to issue a physical debit card allowing for direct cryptocurrency spending. In early 2020, the Foundation also announced a partnership with the Atari video game company, which is currently in the process of releasing two tokens and a cryptocurrency casino.

In October 2019, the Foundation released an unaudited financial statement showing net assets of US$570,000, after concerns were raised regarding the Foundation’s solvency. Lee added that “the Litecoin Foundation was started in 2017. Development happened before the foundation even existed. And development will happen even if the foundation runs out of money. This is a decentralized cryptocurrency after all.”

Turning to developer activity, the LTC project has 38 repos on GitHub. Most coins use the developer community of GitHub where files are saved in folders called "repositories," or "repos," and changes to these files are recorded with "commits," which save a record of what changes were made, when, and by who. Although commits represent quantity and not necessarily quality, a higher number of commits can signify higher dev activity and interest.

In a tweet thread, Lee addressed the seemingly low level of development. He explained that the Litecoin project has only ever had a total of six core developers, who mainly merge BTC code changes into the LTC code. Adrian Gallagher is one of the core developers and works on a personal branch. These changes are only recorded on the main branch once they are finalized.

Over the past year, there have been four commits in the main GitHub repo, litecoin-project/litecoin (shown below). Compared to previous years, 2019 and 2020 has seen a marked reduction in dev activity. However, Litecoin Core 0.18.1 was released in early 2020 by Adrian Gallagher.

Litecoin Price Analysis 12 Feb 2021 (3)
Source: Github – litecoin-project/litecoin

In October 2019, Litecoin Improvement Protocol (LIP) 2 and 3 were published, outlining Extension Blocks and MimbleWimble, respectively.

Litecoin Price Analysis 12 Feb 2021 (4)
Source: Github – litecoin-project/lips

Extension Blocks (EB) are a type of sidechain first proposed by Bitcoin developer Johnson Lau in 2013, and allow for protocol variables that differ from the main chain. Therefore, EBs can have increased block sizes or bring increased programmability and privacy without the need for a hard fork of the entire chain. Each EB is only connected to the corresponding block from the main chain, as opposed to every other block in the main chain. Criticisms of EB include decreased backward compatibility and decreased chain security.

MimbleWimble (MW) uses zero-knowledge proofs and a specific type of transaction mixing to obscure transaction details while still allowing for transaction verification. Adding MW through EBs allows for the opt-in use of transaction privacy on the LTC chain and brings increased coin fungibility. The soft fork will be activated one year from the day the implementation is released. Miners will be able to activate the change early with at least a 75% signaling threshold. A major criticism of private transactions revolves around an inability to audit the total coin supply, allowing for the possibility of phantom inflation.

In December, the Litecoin Foundation announced a fund to support the development of both EB and MW. The fund has a goal of raising US$72,000, to support developer David Burkett throughout 2021 and beyond if necessary. Thus far, the fund has collected 1,528 LTC and 0.35 BTC.

Litecoin Price Analysis 12 Feb 2021 (5)
Source: thebitcoin.pub/t/mimblewimble-the-good-and-the-bad/49971

On the network side, LTC uses SegWit enabled addresses to both decrease individual transaction size and cost, as well as increase the maximum block size to more than 1MB. SegWit use approached 95% in September 2020 but has since declined to 75%.

Segwit also enables transactions to be used on the Lightning Network, a bi-directional, off-chain, hub-and-spoke payment channel. The LTC Lightning Network currently has 530 channels and the network capacity exceeds 166 LTC, or US$31,000.

Litecoin Price Analysis 12 Feb 2021 (6)
Source: Blockchair

The number of LTC transactions per day (red line, chart below) had ranged from 20,000 to 40,000 for the past two years until August 2020. In September, transactions per day rose 4x after the release of LiteBringer, a decentralized, idle RPG PC-based fantasy game that uses LTC for microtransactions.

Transactions also rose substantially in December 2017 and January 2018, most likely in response to the expensive and delayed transactions on the BTC network. There are currently less than 500 pending LTC transactions (bottom chart, below), which have declined since the LightBringer release.

The average transaction value on the network (green fill, chart below) fell dramatically throughout 2018. Average transaction values increased in early 2019 with an increase in LTC price. Over the past few months, any rise in average transaction value has corresponded with a rise in price. Average transaction values are currently US$5,000, down substantially from a high of ~US$30,000 in November 2017.

Litecoin Price Analysis 12 Feb 2021 (7)
Source: CoinMetrics

Litecoin Price Analysis 12 Feb 2021 (8)
Source: jochen-hoenicke.de

The network average block size (red line, chart below) fell dramatically throughout 2018 and early 2019, and has also decreased after the block reward halving in August 2019. Since February 2020, block sizes have increased 4x, and currently stand at 0.06 MB. Historically, the average block size still remains higher than at any point prior to June 2017.

Since 2016, the average transaction fee (green fill, chart below) has fluctuated dramatically with block size. The average LTC transaction fee is currently US$0.031, substantially cheaper than either the BTC or ETH transaction fee. Fees spiked to nearly US$0.16 in May 2019, a multi-month high, along with the spike in transactions at that time. Litecoin Core v0.17.1, also released in May 2019, lowered the default minimum transaction fee to 0.0001 LTC/kB.

Litecoin Price Analysis 12 Feb 2021 (9)
Source: CoinMetrics

The 30-day Kalichkin network value to estimated on-chain daily transactions (NVT) ratio (red line, chart below) is currently 65 and falling. NVT hit an all-time high of 171 in late-February 2020. An NVT below 20 would likely indicate organic and sustained bull market conditions based on chain utility.

Inflection points in NVT can be leading indicators of a reversal in an asset’s value. An uptrend in NVT often suggests an asset is overvalued based on its economic activity and utility, which should be seen as a bearish price indicator, whereas a downtrend in NVT suggests the opposite.

Active and unique addresses are important to consider when determining the fundamental value of the network based on Metcalfe’s law. Monthly active addresses (MAAs) had declined since January 2018 (green fill, chart below), and held near multi-year lows for several weeks. Over the past few months, MAAs have increased to multi-year highs. Overall, MAAs remain well above historic levels prior to July 2017. However, LTC has far fewer MAAs than either BTC or ETH but nearly 10x more active addresses than Ripple (XRP).

The top 100 LTC addresses currently hold 41% of the available supply, compared to 15% for BTC, 33% for ETH, and 66% for XRP. Most of these top addresses are likely exchange holdings. In November 2018, Coinbase created 40 new LTC cold storage addresses, each containing 300,000 LTC.

Litecoin Price Analysis 12 Feb 2021 (10)
Source: CoinMetrics

Another crypto-native fundamental metric is the MVRV ratio, or the market cap divided by the realized cap. Realized cap approximates the value paid for all coins in existence by summing the market value of coins at the time they last moved on the blockchain.

Historically, periods of an MVRV less than 0.5 have represented oversold conditions, whereas periods of an MVRV greater than 2.5 have represented overbought conditions. Both instances of MVRV above 3.0 have represented all-time highs in price. Currently, MVRV is 2.05, approaching overbought territory.

Litecoin Price Analysis 12 Feb 2021 (11)
Source: CoinMetrics

After the block reward halving in early August 2019, the hash rate dropped by nearly 70% from July 2019 to March 2020. From April to October 2020, the hash rate and difficulty doubled from the March lows. These hash rate gains were quickly lost in October but have once again increased substantially over the past few months. Hash rate and difficulty hit an all-time high in July 2019.

Of the 84 million LTC to ever exist, 79.44% have been mined. Inflation per year currently stands at 4.03% and is set to decrease to 1.80% after the next block reward halving in August 2023. The network currently has 1,395 active public nodes, most of which reside in the United States, Germany, and France. Only 31% of these nodes are running the latest version of Litecoin Core (0.18.1).

Litecoin Price Analysis 12 Feb 2021 (12)
Source: BitInfoCharts

Mining profitability has nearly doubled over the past few months but remains near all-time lows. Factors that influence mining profitability include; price, block times, difficulty, block reward, and transaction fees. Both the spot price and difficulty have risen since October 2020.

Renewable energy sources around the world, including hydroelectric and geothermal power, bring electricity prices for most mining farms to US$0.04 cents/KWh or lower. All public Scrypt ASIC miners (shown below) are profitable at an electricity cost of US$0.04 cents/kWh. No new miners are set for release in 2020.

Litecoin Price Analysis 12 Feb 2021 (13)
Source: asicminervalue

Worldwide Google Trends interest for the term "Litecoin" has slowly increased over the past few weeks marking a three-year high. A slow rise in searches for "Litecoin" preceded the bull run in Q4 2017, likely signaling a large swath of new market participants at that time. A 2015 study found a strong correlation between the Google Trends data and Bitcoin price, while a 2017 study concluded that when the U.S. Google "Bitcoin" searches increase dramatically, Bitcoin price drops.

Litecoin Price Analysis 12 Feb 2021 (14)

Litecoin Price Analysis 12 Feb 2021 (15)

Technical Analysis

In March 2020, LTC saw the third-worst drop on record, which mirrored the wider crypto markets, with multi-year highs in daily volumes across most exchanges. Since March, LTC has had a muted recovery relative to the other high cap coins, until very recently. A roadmap for potential trend changes can be deduced using Exponential Moving Averages, Volume Profile of the Visible Range, and the Ichimoku Cloud. Further background information on the technical indicators discussed below can be found here.

On the daily chart for the LTC/USD market, the 50-day Exponential Moving Average (EMA) and the 200-day EMA have crossed bullish on October 28th, the third such cross in 2020. The previous two Golden Crosses lasted just 45 and 27 days, respectively. A Golden Cross in 2019 led to a 180% price appreciation over a 110 day period. The current Golden Cross has led to a 222% bull rally over the past 110 days.

The 200-day EMA, at US$100, may now act as support for the spot price. The Volume Profile of the Visible Range (VPVR) also currently shows support between the US$42-US$62 range and the US$28-US$32 range. Yearly pivot resistance sits at US$210, US$283, and US$350. Additionally, a potential bearish divergence has formed on volume and RSI, suggestive of weakening bullish momentum.

Open interest on Bitfinex for the LTC/USD pair is 78% long with longs increasing over the past few weeks and shorts holding flat over the same time period (top panel, chart below). A significant price movement downwards will result in an exaggerated move further, as the long positions will continue to unwind. This is known as a “long squeeze.” On March 30th and 31st, shorts held a greater percentage than longs and a short squeeze occurred shortly thereafter, sending the spot price quickly higher.

Litecoin Price Analysis 12 Feb 2021 (16)

Turning to the Ichimoku Cloud, four metrics are used to indicate if a trend exists; the current price in relation to the Cloud, the color of the Cloud (red for bearish, green for bullish), the Tenkan (T) and Kijun (K) cross, and the Lagging Span. The best entry always occurs when most of the signals flip from bearish to bullish, or vice versa.

Daily Cloud metrics, with doubled settings (20/60/120/30) for more accurate signals, are bullish; the spot price is above the Cloud, the Cloud is bullish, the TK cross is bullish, and the Lagging Span is above the Cloud and above the spot price. The trend will remain bullish so long as the spot price remains above the Cloud, currently at US$137. Kijun support also sits at US$137.

Litecoin Price Analysis 12 Feb 2021 (17)

On the weekly LTC/BTC chart, the spot price has historically been unable to maintain any position above 0.02 BTC and continues to break multi-year lows. The 50-day and 200-day EMAs failed to cross bullishly in early 2020 despite a spot price above the daily Cloud at that time (not shown). The trend will remain bearish so long as the spot price remains below the 200-day EMA and daily Cloud. Currently, both the 200-day EMA and daily Cloud sit at 0.0044 BTC.

A high volume VPVR node, at 0.008888 BTC, should act as strong resistance on any future rise. There is virtually no VPVR support below 0.006000 BTC. Open interest on Bitfinex for the LTC/BTC pair is 98% long. Additionally, there is a growing bullish divergence on RSI suggestive of waning bearish momentum.

Litecoin Price Analysis 12 Feb 2021 (18)

Conclusion

Litecoin fundamentals have continued to increase over the past few months after remaining stagnant for two years. In early March 2020, NVT made a new all-time high, suggesting decreased on-chain utility per market cap dollar compared to previous periods. Conversely, MVRV, another inverse metric of economic utility, also fell near the historic buy zone in early 2020. Hash rate reached a plateau leading into the August halving and experienced a 70% reduction, with mining profitability sitting near all-time lows. However, over the past few months, the hash rate doubled, quickly halved, then doubled again.

Developer activity on the main Github repo has been nearly non-existent over the past few years, with Litecoin Core 0.18.1 released in early 2020. A Litecoin Improvement Protocol for Extension Blocks and MimbleWimble was also released in Q4 2019. Together, these changes would allow for a soft fork enabling private transactions and increased coin fungibility. However, Extension Blocks and MimbleWimble could also introduce variable consensus rules with decreased chain security, as well as hidden inflation.

Technicals for the LTC/USD pair reveal bullish trend metrics with the spot price above both the 200-day EMA and daily Cloud. The most significant upside resistance sits at US$210, based on the yearly pivot and VPVR. Downside support sits near US$137 based on the daily Kijun.

Technicals for the LTC/BTC pair reveal strongly bearish trend metrics with price below both the 200-day EMA and daily Cloud. An over 30-week bullish divergence on RSI has failed to strongly reverse the trend this far as the spot price continued to break multi-year lows. Other than the previous all-time low at 0.003 BTC, there are no remaining downside supports.


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