Litecoin Price Analysis – High risk and reward

Litecoin (LTC) has had a quiet February after the Litecoin Cash fork. The market cap now stands at US$11 billion, with US$640 million traded on exchanges in the past 24 hours.

Grayscale Investments recently launched the Litecoin Investment Trust, which currently holds almost 2400 LTC. Established in 2013 by Barry Silbert’s’ Digital Currency Group, Grayscale sells exposure to the price movement of several cryptocurrencies through a traditional investment vehicle, without the challenges of buying, storing, and safekeeping cryptocurrencies. Grayscale Investments is the sponsor of Bitcoin Investment Trust, Bitcoin Cash Investment Trust, Ethereum Investment Trust, Ethereum Classic Investment Trust, XRP Investment Trust and Zcash Investment Trust, and the manager of Grayscale Digital Large Cap Fund LLC.

However, the trusts and the fund are private investment vehicles, are not registered with the Securities and Exchange Commission (SEC) or any other regulatory agency in any jurisdiction, and are not subject to the same regulatory requirements as SEC-registered exchange-traded funds or mutual funds. Shares of the Vehicles are not insured by the Federal Deposit Insurance Corporation or any other governmental agency.

Coinbase launched its own index fund today, announced on CNBC, which will give investors exposure to all digital assets listed on GDAX, weighted by market capitalization. Founded in June of 2012, Coinbase is a San Francisco based digital currency wallet and platform where merchants and consumers can transact with cryptocurrencies like bitcoin, ethereum, and litecoin.

The components of the fund are weighted by market capitalization, and the fund is reconstituted each time a new asset is listed on GDAX. The index currently holds Bitcoin 62%, Ethereum 27%, Bitcoin Cash 7%, and Litecoin 4%.

While the Coinbase funds will only be sold to accredited investors in the U.S., the SEC has not given its approval to any interests in any Coinbase fund, the terms of any offering of any Coinbase fund, or the accuracy or completeness of any offering materials of Coinbase funds. Interests in Coinbase funds are subject to legal restrictions on transfer and resale and investors should not assume they will be able to resell their interests in any fund.

While new funds struggle to walk the line between regulatory purgatory and building a customer base, A beta version of Circle’s answer to the Robinhood app, Circle Invest, has launched today. Available for iOS and Android, the app enters the arena of products for retail investors or those who are not familiar enough with cryptocurrencies to trade them directly. Access to Circle Invest may, of course, be restricted based on age, jurisdiction and other eligibility requirements.

In the meantime, Litecoin transactions per day and transaction fees have returned to levels not seen since December 2017. Both metrics largely follow LTC price itself.

The NVT ratio is among the lowest of all coins, based on available data, suggesting the coin is underpriced based on its utility. Only Dogecoin (DOGE) and Cardano (ADA) have a lower NVT. The ration can be used to assess the network’s relative utility over time, although NVT is difficult to compare between coins which use different transaction types.

Difficulty and hash rate have reached all-time highs, with the next block reward halving set for August 2019. Hash rate will continue to increase with SHA-256 ASICs being manufactured by Bitmain. Mining profitability is near all-time lows (not shown).

LTC trading volume has been led by the Bitcoin (BTC) and the US Dollar Tether (USDT) pairs. OKEX and GDAX currently lead the LTC/BTC and LTC/USD pairs respectively. The KRW trading pair holds a 5% premium.

Technical Analysis

LTC has more than doubled since the lows established in February, but has yet to reestablish an undeniable bullish trend. Pitchfork, EMAs, and Cloud can help assess the trend transition or interim price action.

On the daily chart, a Pitchfork with anchor points in May and September shows price returning to the 1.618 extension. Price has previously been rejected at the upper and lower quartile at this diagonal zone, signifying strong reversal. Price will typically attempt to return to the Pitchfork mean (red), as long as the trend remains intact and price does not drop below the lowest diagonal support. Price has also been consistently held by the 50EMA, as is the case currently, with the 200EMA acting as a support for extreme lows.

Ichimoku Cloud metrics on the daily chart, using singled settings (10/30/60/30) for faster signals, are neutral; Price is in Cloud, signifying a no-trade zone, while the Cloud and the TK cross are bullish. A long entry signal is off the table until price exits the Cloud.

There is also an active bull flag chart pattern, which may have broken downward yesterday on volume. The target for this pattern is between US$285 and US$315 based on the 1.618 fib extension and measured move respectively.

Cloud metrics on the daily chart, using doubled settings (20/60/120/30) for more accurate signals, are neutral to bearish; Price is below Cloud, and the Cloud is bearish, but the TK cross is bullish. A long entry will not trigger until price is above the Cloud and the Cloud twists bullish. This make take several weeks to occur.

On the daily LTC/ETH pair, there is a bull flag chart pattern with tight Bollinger Bands, suggesting an end to consolidation. Cloud signals are bearish, but the T and K lines have formed a bullish cross. Price will enter the Cloud shortly, signaling an edge to edge trade, where the target is the opposite edge of the Cloud. This zone also represents a monthly pivot resistance level.

Conclusion

When Bitcoin’s fee market was under stress, Litecoin has been used as a cheaper means of transaction. Now that fees have stabilized on BTC, LTC transactions have decreased dramatically. Despite this, LTC’s NVT ratio remains among the lowest of all coins with available data suggesting that the coin is undervalued based on its utility.

Technicals show high risk and reward at the current level. Long entries have substantial upside, with resistance at the previous record high of ~$430. Price remains above the 200EMA on the daily, suggesting that the bull trend remains intact on the USD pair. Based on the LTC/ETH ratio, LTC looks primed to make substantial gains on ETH over the next month.