Litecoin Price Analysis – waning bear trend

Litecoin (LTC) has recovered nearly 20% from yearly lows over the past few days, but remains down 93% from the record high on December 19th. The LTC market cap, which currently stands at US$1.55 billion, is the 7th largest among coins tracked by bravenewcoin.com, recently surpassing Bitcoin Cash. There has been US$383 million in LTC exchange-traded volume over the past 24 hours.

LTC is a Bitcoin (BTC) fork created by Charlie Lee in 2011. LTC differs from BTC in a few ways, namely: a shorter block time, increased supply, and a different Proof of Work hashing algorithm – Scrypt. Lee views BTC as digital gold and LTC as digital silver.

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

Lee is also an advisor for the HTC Exodus1 blockchain phone, first announced in May 2018, which can now 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 uses 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. Exact details for 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) stands at ~24,000, essentially sitting at a yearly low. Transactions per day are still double that of the previous peak in December 2013. Average transaction value (fill, chart below) has fallen dramatically through the year but has risen slightly over the past few weeks, currently at ~US$4,000, and down from a high of ~US$59,000 in November 2017.

On September 12th, the Litecoin Foundation conducted a stress test for the Litecoin network by sending 0.1 LTC to 1,263 addresses, which occurred through two batched transactions. Transaction sizes were 25.989 kB and 17.32 kB. In contrast, a typical transaction is around 0.2 kB. Transaction fees were approximately 0.026 LTC and 0.017 LTC. The process took 0.5 seconds to create and broadcast a batched transaction to 759 addresses. The total time to fund 1,263 addresses through two transactions was under one second.

Source: coinmetrics.io

LTC uses SegWit enabled addresses to both decrease individual transaction size and cost, as well as increased maximum block size. 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 three months, SegWit usage has averaged between 50-55%.

Block size has trended down since February with block times have averaged just under two minutes and thirty seconds since January. The network benefits from fast block times, and currently has only 131 pending transactions. Average transaction fees have declined to a new yearly low of US$0.0157. The next release of Litecoin Core v0.17 will reduce fees by 10x, which forecasts an average transaction fee at less than half a cent.

Source: bitinfocharts.com

The 30-day Kalichkin network value to estimated on-chain daily transactions (NVT) ratio (line, chart below) rose to the previous ATH but has since began declining. 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, 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 44% of the available LTC supply. On November 30th, 40 new wallets appeared, each containing 300,000 LTC, or about 20% of the total available circulating supply.

While active and unique addresses are important to consider when determining the fundamental value of the network based on Metcalfe’s law, there are also 124 Litecoin groups on meetup.com with 42,017 members total. The /r/Litecoin subreddit has 199,802 subscribers and is ranked 618 based on total subscriber count.

Source: coinmetrics.io

Of the 84 million LTC to ever exist, 70.97% have been mined. Inflation per year currently stands at 9.22%. The next block reward halving is set for August 2019. The network currently has 104 active public nodes, 25% of which reside in the United States.

Difficulty and hashrate have decreased by over 50% since record highs in May and June, which is most likely fueled by a decrease in mining profitability. Mining profitability is currently sitting at an all-time low. Factors that influence mining profitability include; price, block times, difficulty, block reward, and transaction fees. The most popular Scrypt ASIC miners available for LTC include the Bitmain Antminer L3+ and L3++ and the Innosilicon A4, A4+, and A6, most of which are unprofitable at an electricity cost of US$0.06 cents/KWh.

Source: bitinfocharts.com

Turning to developer activity on Github, 184 developers have contributed a cumulative 1,104 commits to the LTC repos in the past year and three commits in the past 90 days. Compared to previous years, 2018 has seen a marked reduction in dev activity, however, Charlie Lee has stated "we don’t work on the master branch" of the GitHub repo.

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. Most of the LTC related commits over the past year have occurred in the litecoin-project/litecoin repo (shown below).

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 sharing an equal but smaller volume. Exchanges with the most volume over the past 24 hours include OKEx, DigiFinex, and IDAX.

LTC has has continued to gain exchange listings and exposure at the end of Q3 and the beginning of Q4. On September 7th, Coinbase listed an LTC/GBP pair. On September 17th, Bittrex listed an LTC/USD pair. On October 16th, the Gemini exchange enabled LTC trading against against BTC, ETH, ZEC, USD. On October 30th, CMC markets, a London-based CFD platform, enabled LTC trading. On November 5th, Litecoin.com added a buy function with pairs in USD, EUR, and GBP, along with a logo redesign. On November 6th, OKEx added a margin LTC/BTC pair. On December 13th, CoinGate announced LTC Lightning Network support, enabling more than 1,000 merchants access to LTC payments. On December 16th, Travala.com announced LTC payment support for booking of 550,000 hotels in 210 countries. ErisX, a CFTC-regulated Designated Contract Market, also aims to launch LTC spot trading in Q2 of 2019 and a futures contract in the second half of the year.

Technical Analysis

On the daily hour chart, the 50/200EMAs have been bearishly crossed since late May, resulting in an 83% price decline. The 200EMA, currently at US$65, should act as both a magnet and strong resistance for price if it reverts to the mean. There are active RSI and volume bullish divergences as price continues to make lower lows on less momentum and less volume.

The historic volume profile (horizontal bars) shows a high volume area at US$53 which will act as resistance if price moves upward. The historic volume profile also shows a low volume area between US$22 and US$18, suggesting if price does make a lower low, the next support would be around US$18.

Total long/short open interest for the LTC/USD pair (top panel, chart below) is net short on Bitfinex for the first time since October 2017. Shorts are also near record highs, meaning a significant price movement upwards will result in an exaggerated move as the shorts positions will begin to unwind.

Price remains bound to a bearish Pitch Fork (PF) with anchor points in December, March, and May. Both the upper and lower diagonal zones have been strong resistance or support. Price will continually attempt to return to the median line (yellow), currently at US$31, throughout any given trend. The bearish PF will remain valid until a candle close above the PF, current at US$45.

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 bearish; price is below Cloud, Cloud is bearish, TK cross is bearish, and Lagging Span is below Cloud and below price. Price has remained below the Cloud since May. A traditional long entry will not trigger until a candle close above the Cloud.

As price moves further and further from the Kijun (red line), a mean reversion back to the Kijun becomes more and more likely. If price does not make lower lows, a TK C-Clamp will continue to form, suggesting mean reversion to the Kijun at US$40. The flat Kumo at US$46 will also act as a magnet for price.

Lastly, the daily chart for the LTC/BTC pair also shows bearish Cloud metrics with price below the Cloud and 200EMA since May. Price has also formed a broadening descending wedge, a bullish reversal chart pattern. Hallmarks for the pattern include a series of lower highs and lower lows. The reversal target for the pattern is the highest high established while forming the wedge, or just below the 10,000 sat level. This target also roughly corresponds with the 200EMA.

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. The recent movement of 20% of LTC’s circulating coin supply drastically increased the average transaction value sent on-chain, and decreased the NVT ratio substantially. It is unlikely this level of on-chain activity will be sustained and therefore the NVT ratio should begin to increase again, especially if the LTC price increases in value. Dev activity on the main repo has been nearly non-existent over the past few months but the next Litecoin Core upgrade is due for early next year. Overall, this paints a mixed but largely bearish outlook, as network utility remains in a downtrend.

Technicals suggest an active bear trend with waning bearish momentum. Trend indicators are showing oversold conditions with the potential for a mean reversion towards the US$30-US$40 level. Trend indicators also suggest no bullish trend reversal until price surpasses the US$45-US$55 zone. With shorts nearing an ATH on Bitfinex, the potential for a short squeeze becomes increasingly likely.