Litecoin Price Analysis – Network use near yearly lows

Litecoin (LTC) has recovered by 50% from the recent low established in early December 2018, but remains down 91% from the record high on December 2017. The market cap currently stands at US$1.99 billion with US$618 million in exchange-traded volume over the past 24 hours.

LTC is a Bitcoin (BTC) fork created by Charlie Lee in 2011. Lee has described BTC as digital gold and LTC as digital silver. LTC differs from BTC in a few ways, namely: a shorter target block time at two minutes and 30 seconds, a four-fold increase in total supply, and a different Proof of Work hashing algorithm called Scrypt.

Lee is a former Google employee and the brother of Bobby Lee, CEO of the now-closed Chinese cryptocurrency exchange BTCC. Lee also worked as an engineer at Coinbase from 2013-2017. Despite selling all of his LTC in December 2017, Lee continues to have active involvement in Litecoin development and the community at large, including enabling the SegWit upgrade on the protocol and getting LTC listed on Coinbase.

LTC uses SegWit enabled addresses to both decrease individual transaction size and cost, as well as increase maximum block size above 1MB. The SegWit protocol upgrade also enables transactions to be used on the Lightning Network, a bi-directional, off-chain, hub-and-spoke payment channel. Over the past six months, LTC SegWit usage has averaged between 50-55%.

Lee recently discussed adding confidential transactions to the platform, by adding bulletproofs and MimbleWimble (MW) via a soft fork. Both of these changes would offer privacy solutions with complete fungibility between transactions. Bulletproofs use zero-knowledge proofs while MW uses a type of transaction mixing to obscure transaction details. Bulletproofs are currently active on Monero (XMR), while MimbleWimble implementations are currently active on Beam and Grin.

Source: https://thebitcoin.pub/t/mimblewimble-the-good-and-the-bad/49971

Lee is also an advisor for the HTC Exodus1 blockchain phone, first announced in May 2018, which can be purchased for a fixed price of 19.84 LTC. The phone can also be purchased with BTC or ETH. The default web browser on the phone is Brave, which uses the BAT token for microtransactions. The phone also includes the Zion crypto wallet. For cold storage recovery, the phone uses a social key system whereby the user can give a shard of the key to five friends. However, specific details surrounding the blockchain components on the phone have been sparse, and user reviews for the phone have been poor.

The current number of transactions per day on the LTC network (line, chart below) has declined slightly over the past few months, although they are still double that of the previous peak in December 2013. Transaction rose substantially in December 2017 and January 2018, which was most likely in response to the expensive and delayed transactions on the BTC network.

The average transaction value (fill, chart below) has fallen dramatically through the year but has gained some ground over the past few weeks. The average transaction value is currently at just under US$4,000, down from a high of ~US$59,000 in November 2017. The Litecoin Foundation conducted a stress test in September last year, sending 0.1 LTC to 1,263 addresses in under one second.

Source: coinmetrics.io

The networks block size (line, chart below) has been in a downward trend since February 2018, while block times have averaged just under two minutes and thirty seconds since January 2018. The network clearly benefits from these relatively fast block times and currently has only 144 pending transactions. Average transaction fees (fill, chart below) have declined to a new yearly low of US$0.0218. The next release of Litecoin Core v0.17 will reduce fees by 10x, and forecasts an average transaction fee at less than half a cent.

Source: coinmetrics.io

The 30-day Kalichkin network value to estimated on-chain daily transactions (NVT) ratio (line, chart below) rose to match the previous record late last year, but has since begun to decline. Inflection points in NVT can be leading indicators of a reversal in asset value. A clear uptrend in NVT suggests a coin 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.

Daily active addresses (fill, chart below) have declined since January 2018, but remain well above historic levels. However, LTC has far fewer daily active addresses than either Bitcoin or Ethereum. The top 100 addresses currently hold 41.84% of the available LTC supply. In November 2018, 40 new wallets appeared, each containing 300,000 LTC, or about 20% of the total available circulating supply. A few days later, Coinbase came forward and claimed those wallets as the new LTC cold storage addresses. Active and unique addresses are important to consider when determining the fundamental value of the network based on Metcalfe’s law.

There are also 113 Litecoin groups on meetup.com with 42,065 members total. The /r/Litecoin subreddit has 199,653 subscribers and is ranked 618 based on total subscriber count. There are currently only three LTC-related job postings on LinkedIn.

Source: coinmetrics.io

Of the 84 million LTC to ever exist, 71.83% have been mined. Inflation per year currently stands at 9.10% and is set to decrease to 4.26% after next block reward halving on August 8th of this year. The network currently has 96 active public nodes, 26% of which reside in the United States.

Difficulty and hash rate had decreased by over 50% since reaching record highs in May and June, which is most likely fueled by a decrease in mining profitability. Hash rate and difficulty began to rebound in mid-December, while mining profitability is currently sitting at an all-time low.

The most popular Scrypt ASIC miners available for LTC include the Bitmain Antminer L3+ and L3++ and the Innosilicon A4, A4+, and A6, all of which are barely profitable at an electricity cost of US$0.06 cents/KWh. Factors that influence mining profitability include; price, block times, difficulty, block reward, and transaction fees.

Source: bitinfocharts.com

Turning to developer activity on Github, 184 developers have contributed a cumulative 1,104 commits in the LTC repos over the past year, and one commit in the main repo over the past 90 days. Compared to previous years, 2018 saw a marked reduction in dev activity, however, Charlie Lee has stated "we don’t work on the master branch" of the GitHub repo. Most of the LTC related commits over the past year have occurred in the litecoin-project/litecoin repo (shown below).

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.

Source: https://github.com/litecoin-project/litecoin

Exchange traded volume during the past 24 hours has been predominantly led by the Bitcoin (BTC) and Tether (USDT) pairs with the U.S. Dollar (USD) and Ethereum (ETH) pairs also sharing a substantial but smaller volume. Exchanges with the most volume over the past 24 hours include OKEx, DigiFinex, and p2pb2b.

At the end of 2018, LTC continued to gain exchange listings and exposure. New LTC pairs were listed on Coinbase, Bittrex, Gemini, CMC markets, and OKEx. Binance and Huobi also listed new LTC pairs this month. Litecoin.com also added a buy function with pairs in USD, EUR, and GBP, along with a logo redesign. CoinGate and Travala.com both enabled LTC payment support for merchants and hotels. This year, ErisX, a CFTC-regulated Designated Contract Market, is attempting to launch LTC spot trading and a futures contract. Fidelity may also launch an LTC product sometime this year.

Technical Analysis

On the daily chart, the 50/200EMAs have been bearishly crossed since late May 2018 and price has essentially been held below the 50EMA since the bearish cross. The 200EMA, currently at US$52, should act as both a magnet and strong resistance for price if it reverts to the mean. There are no active RSI or volume divergences at this time. Total long/short open interest for the LTC/USD pair (top panel, chart below) is slightly net long on Bitfinex.

The historic volume profile (horizontal bars) shows a high volume area at US$52, which will act as resistance if price moves upward. Price is currently above a high volume zone at US51, which should act as support. The historic volume profile also shows a low volume area between US$22 and US$18, suggesting that if price does make a lower low, the next support would be around US$18.

LTC also remains bound to a bearish Pitchfork with anchor points in December, March, and May 2018. Both the upper and lower diagonal zones have been strong resistance and support. Price will continually attempt to return to the median line (yellow), currently at US$23, throughout any given trend. The bearish PF will remain valid until a candle closes above the PF, currently at US$36, which may happen as early as this week.

Turning to the Ichimoku Cloud, four metrics are used to determine 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.

The status of the current Cloud metrics on the daily time frame, with doubled settings (20/60/120/30) for more accurate signals, are mostly bearish; price is below Cloud, Cloud is bearish, TK cross is bullish, and Lagging Span is below Cloud and in price.

Price has remained below the Cloud since May 2018. A traditional long entry will not trigger until a candle close above the Cloud. The flat Kumo at US$43 will also act as a magnet for price. If price does not make lower lows, the probability of a trend reversal through February and March continues to increase.

Lastly, the daily chart for the LTC/BTC pair has a bullish Cloud with price above the 200EMA. There is also a bearish divergence on both volume and the RSI, suggesting bullish momentum is waning and a pullback is likely soon. The 50/200EMA will also likely cross bullishly over the next month, another long entry signal. The most likely target for the uptrend is at the 50% retrace level from high to low, at 0.016 BTC.

Conclusion

Fundamentals suggest network use in terms of both the number of transactions and the value of those transactions continues to hold near yearly lows. Dev activity on the main GitHub repo has been nearly non-existent over the past few months but the next Litecoin Core upgrade is due for early this year. Additionally, protocol upgrades enabling confidential transactions could fuel a speculative rally later this year.

Technicals suggest a waning bear trend on the LTC/USD pair and a nascent bull trend on the LTC/BTC pair. Bitfinex open interest is not imbalanced for shorts or longs, suggesting the possibility of further upside. A bullish Kumo breakout and a break of the longstanding bearish Pitchfork on the LTC/USD pair would be highly probable of further upside. Targets of US$42 are likely over the next two months with a target of 0.016 BTC likely over the course of this year.

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