Litecoin Price Analysis – Golden cross forms as on-chain activity blooms

The Litecoin price remains down over 32% since the block reward halving in August 2019, and down 82% from the record high set in December 2017.

Watch a summary of this analysis on YouTube

The LTC market cap is currently 7th on the Brave New Coin [market cap table](https://bravenewcoin.com/data-and-charts/market-cap) at US$4.12 billion, with US$657 million in exchange-traded volume over the past 24 hours.

Litecoin (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 eventual total supply, and uses a different Proof of Work consensus algorithm called Scrypt.

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 recent 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. Earlier this year, the Foundation also announced a partnership with the Atari video game company, who are 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 37 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 50 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 earlier this year by Adrian Gallagher.

Source: Github – litecoin-project/litecoin

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

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 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 the next year. Thus far, the fund has currently collected 1,044 LTC and 0.138 BTC.

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 has increased to over 70% in the past few months and 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 650 channels and the network capacity exceeds 161 LTC, or US$10,000.

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 earlier this month. Since March 2020, transactions per day rose 2.5x and now stand at nearly 50,000. Transactions rose substantially in December 2017 and January 2018, which was most likely in response to the expensive and delayed transactions on the BTC network. There are currently less than 200 pending LTC transactions (bottom chart, below).

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$2,000, down substantially from a high of ~US$30,000 in November 2017.

Source: CoinMetrics

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, block sizes have increased 3x, and currently stand at 0.3 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$0.013, only 0.6% of the current BTC transaction fee and only 0.3% of the current 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.

Source: CoinMetrics

The 30-day Kalichkin network value to estimated on-chain daily transactions (NVT) ratio (red line, chart below) is currently 135 and rising. NVT hit an all-time high of 171 in late-February. 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 were held near multi-year lows. Over the past few months, MAAs have increased to multi-month highs. Overall, MAAs remain well above historic levels prior to July 2017. However, LTC has far fewer MAAs than either BTC or ETH but over 10x more active addresses than Ripple (XRP).

The top 100 LTC addresses currently hold 42% of the available supply, compared to 15% for BTC, 33% for ETH, and 73% 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.

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 0.64, nearing the historic buy zone.

Source: CoinMetrics

After the block reward halving in early August, the hash rate dropped by nearly 70% from July 2019 to March 2020. In recent weeks, hash rate and difficulty have doubled from the March lows. Hash rate and difficulty hit an all-time high in July 2019.

Of the 84 million LTC to ever exist, 78.25% have been mined. Inflation per year currently stands at 4.08% and is set to decrease to 1.80% after the next block reward halving in August 2023. The network currently has 1,400 active public nodes, most of which reside in the United States, Germany, and France. Only 14% of these nodes are running the latest version of Litecoin Core (0.18.1).

Source: BitInfoCharts

Mining profitability has nearly doubled over the past month 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 March.

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. Most 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.

Source: asicminervalue

Worldwide Google Trends interest for the term "Litecoin" increased slightly in June 2018, but has since declined by an equal magnitude. Google Trends interest has not increased significantly over the past two years.

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.

Technical Analysis

In March, LTC saw the third-worst drop on record, which mirrors the wider crypto markets, with multi-year highs in daily volumes across most exchanges. 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 200-day EMA have crossed bullish for the second time this year. The previous Golden Cross was short lived, lasting only 27 days. The Golden Cross in 2019 led to a 180% price appreciation over a 110 day period.

The 200-day EMA, at US$50, should now act as support for price. The Volume Profile of the Visible Range (VPVR) also currently shows between the US$42-US$62 range and strong support between the US$28-US$32 range. Yearly pivot resistance sits at US$72, US$115, and US$190. Additionally, a large bearish divergence on RSI formed over the past week, suggestive of waning bullish momentum.

Open interest on Bitfinex for the LTC/USD pair is 95% long with longs increasing significantly over the past month and shorts decreasing slightly in 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.

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 currently bullish; the spot price is above the Cloud, the Cloud is bullish, the TK cross is bullish, and the Lagging Span is above both the Cloud and the spot price. The trend will remain bullish so long as the spot price remains above the Cloud. Kijun support currently sits at US$54.

On the daily LTC/BTC chart, the spot price has historically been unable to maintain any position above 0.02 BTC and recently broke for a multi-year low. The 50-day and 200-day EMAs failed to cross bullishly earlier this year, despite a spot price above the daily Cloud at that time. The trend will remain bearish so long as price remains below the 200-day EMA and daily Cloud. Currently, both the 200-day EMA and daily Cloud sit at 0.0055 BTC.

A high volume VPVR node, at 0.008888 BTC, should act as strong resistance on any further rise. There is virtually no VPVR support below 0.006000 BTC. Open interest on Bitfinex for the LTC/USD pair is 62% long. Additionally, there are no active bullish or bearish divergences on RSI or volume at this time.

Conclusion

Litecoin fundamentals have finally begun to increase over the past few months after remaining stagnant for the prior two years. In early March, NVT made a new all-time high, suggesting decreased on-chain utility per market cap dollar compared to previous periods. MVRV, another inverse metric of economic utility, also fell near the historic buy zone earlier this year. 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 has doubled, which may be potentially related to covert ASIC mining.

Developer activity on the main Github repo has been nearly non-existent over the past year, with Litecoin Core 0.18.1 released earlier this year. A Litecoin Improvement Protocol for Extension Blocks and MimbleWimble was also released at the end of last year. 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 show bullish trend metrics with price above both the daily 200-day EMA and the daily Cloud. A Golden Cross occurred a few days ago, suggestive of longer term bullish trend reversal. Strong upside resistance, based on yearly pivots and VPVR, sits in the US$100 zone, while VPVR and 200-day EMA support sits at US$50.

Technicals for both the LTC/BTC pair remain bearish with price sitting just below the daily 200-day EMA and daily Cloud. The weekly LTC/BTC chart suggests the potential for a mean reversion back to the high volume VPVR node, yearly pivot, and 200-period EMA at 0.008888 BTC. Otherwise, LTC/BTC has virtually no historic volume support below the lows of 0.005500 BTC.