The Litecoin (LTC) spot price remains down over 50% since the block reward halving in August 2019, and down 87% from the record high set in December 2017.
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The LTC market cap is currently 8th on the Brave New Coin market cap table at US$3.13 billion, with US$245 million in exchange-traded volume over the past 24 hours.
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.
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.
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 630 channels and the network capacity exceeds 175 LTC, or US$8,300.
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 rose also 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 100 pending LTC transactions (bottom chart, below) and have increased since the LiteBringer 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$2,000, down substantially from a high of ~US$30,000 in November 2017.
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 4x, and currently stand at 0.43 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$0.0038, 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.
The 30-day Kalichkin network value to estimated on-chain daily transactions (NVT) ratio (red line, chart below) is currently 84 and falling. 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 17x 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 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.
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 0.71, nearing the historic buy zone.
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, 78.67% have been mined. Inflation per year currently stands at 4.06% 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 19% of these nodes are running the latest version of Litecoin Core (0.18.1).
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.
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.
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 bearishly for the second time this year. The previous Death Cross lasted 150 days. A Golden Cross in 2019 led to a 180% price appreciation over a 110 day period.
The 200-day EMA, at US$50, may now act as resistance. The Volume Profile of the Visible Range (VPVR) also currently shows resistance 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, there are no bullish or bearish divergences on volume or RSI to suggest waning bearish momentum.
Open interest on Bitfinex for the LTC/USD pair is 90% long with longs decreasing significantly since early September and shorts showing little change over the same 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.
Cloud metrics on the daily time frame with doubled settings (20/60/120/30) are bearish; the spot price is below the Cloud, the Cloud is bearish, the TK cross is bearish, and the Lagging Span is below the Cloud and below the spot price. The trend will remain bearish so long as the spot price remains below the Cloud, currently at US$54. The Cloud also shows a growing TK c-clamp suggestive of oversold conditions.
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 0.0050 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/BTC pair is 60% long. Additionally, there is a growing bullish divergence on RSI suggestive of waning bearish momentum.
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 and LTC/BTC pairs are both bearish. Both pairs have prices below their respective 200-day EMA and daily Cloud levels, a litmus test for trend determination. Similar to most of the alt-coin markets in the past month, LTC/USD has had a strong bearish reaction after establishing local highs. Strong support for LTC/USD sits between the US$28-US$32 range based on VPVR. For LTC/BTC, other than the previous all-time low at 0.003 BTC, there are no remaining downside supports.