Litecoin Price Analysis – Waning bullish momentum

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, a four-fold increase in total supply, and uses a different Proof of Work consensus algorithm called Scrypt. The crypto asset is up more than 180% from December lows but remains down 84% from a record high set in December 2017. The market cap currently stands at US$3.59 billion with US$1.33 billion in exchange-traded volume over the past 24 hours. Since mid-February, LTC has outperformed most of the other top 10 crypto assets.

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 2013-2017. Despite selling all of his LTC holdings in December 2017, Lee continues to have involvement in Litecoin development and the community at large, including spearheading the SegWit (SW) upgrade on the protocol and getting LTC listed on Coinbase.

LTC uses SW enabled addresses to both decrease individual transaction size and cost, as well as increase the maximum block size to more than 1MB. The SW protocol upgrade also enables transactions to be used on the Lightning Network (LN), a bi-directional, off-chain, hub-and-spoke payment channel. Since the beginning of the year, SW usage on the LTC chain has averaged between 44-50%. Earlier this month, LN channels on LTC exceeded 1,000 for the first time and the network capacity is currently 176.68 LTC.

Lee has most recently discussed adding confidential transactions to the LTC blockchain via bulletproofs and MimbleWimble (MW). Both of these changes could be added through a soft fork and would offer privacy solutions with complete fungibility between transactions. Bulletproofs use zero-knowledge proofs while MW uses a specific type of transaction mixing to obscure transaction details. Bulletproofs are currently active on Monero (XMR), while MimbleWimble is currently active on the nascent Beam (BEAM) and Grin (GRIN) chains.

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 US$699. The default web browser on the phone is Brave, which uses the Basic Attention Token (BAT) 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.

On the network side, the number of LTC transactions per day (line, chart below) has ranged between 22,000-30,000 since mid-2018. 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 only 136 pending LTC transactions.

The average transaction value (fill, chart below) has fallen dramatically this year but has gained some ground over the past few weeks. Currently, at just over US$4,500, average transaction values are down substantially from a high of ~US$59,000 in November 2017. As LTC price rises, average transaction values will also likely rise.

Source: coinmetrics.io

The networks block size (line, chart below) had been in a downward trend since February 2018 but has rebounded since January, after matching March 2017 lows. Average transaction fees (fill, chart below) are currently slightly above yearly lows at US$0.03663, which is about 10% of a BTC transaction fee. 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) dropped to 22 in January but has since risen to 37. Inflection points in NVT can be leading indicators of a reversal in asset value, although clearly not in this case, as price has risen substantially since January despite a rising NVT. An uptrend in NVT often 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.

Active and unique addresses are important to consider when determining the fundamental value of the network based on Metcalfe’s law. Daily active addresses (fill, chart below) have continued to decline since January 2018, but remain well above historic levels. However, LTC has far fewer daily active addresses than either BTC or ETH.

The top 100 LTC addresses currently hold 41% of the available LTC supply, compared to 16% for BTC and 33% for ETH. In November 2018, 40 new LTC wallets appeared on the rich list, each containing 300,000 LTC. A few days later, Coinbase came forward and claimed those wallets as their new LTC cold storage addresses.

Other grassroots metrics include 113 Litecoin groups on meetup.com with 42,564 members total. The /r/Litecoin subreddit has just over 200,000 subscribers and is ranked 942 based on total subscriber count. There are currently only nine LTC-related job postings on LinkedIn.

Source: coinmetrics.io

Of the 84 million LTC to ever exist, 72.60% have been mined. Inflation per year currently stands at 9.00% and is set to decrease to 4.26% after the next block reward halving on August 7th of this year. The network currently has 212 active public nodes, 27% of which reside in the United States.

Since mid-December, difficulty and hash rate have rebounded substantially. Both are currently around August 2018 levels. Scrypt ASIC miners available for LTC include the Bitmain Antminer L3+ and L3++ and the Innosilicon A4, A4+, and A6, all of which are 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, the LTC project has 37 repos on GitHub. Over the past year, 184 developers have contributed a cumulative 1,100 commits with 7 commits in the past 90 days on the main repo, litecoin-project/litecoin (shown below). Compared to previous years, 2019 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.

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

Exchange traded volume during the past 24 hours has been predominantly led by the Tether (USDT) and Bitcoin (BTC) pairs with the U.S. Dollar (USD) and Ethereum (ETH) pairs also sharing a substantial but smaller volume. The Chinese Yen (CNY) pair holds a 12% premium over the USDT pair. Exchanges with the most volume over the past 24 hours include DigiFinex, OKEx, and p2pb2b.

LTC has continued to gain exchange listings, custody solutions, and exposure over the past six months, including new LTC pairs on Coinbase, Bittrex, Gemini, CMC markets, OKEx, Binance and Huobi. 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. Late last month, the UK CFD exchange, FXCM, added an LTC/USD pair and LTC was added to the Coinbase Wallet. 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.

Google Trends interest regarding the term "Litecoin" remain down sharply over the course of 2018 and early 2019. 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

LTC has outperformed most cryptocurrencies and assets since the beginning of the year on exuberant volume and price action. This suggests an end to the slow bleed bear market that was most of 2018. A roadmap for the nascent bull trend, including pullback potential, can be deduced using exponential moving averages (EMAs), Volume, Pitchforks (PFs), Chart Patterns. and the Ichimoku Cloud. Further background information on the technical analysis discussed below can be found here.

On the daily chart, the 50 and 200 day EMAs have been bearishly crossed since late May 2018 with price largely held below the 50 EMA until early February. Price cleanly exceeded the 200 EMA in early March. Over the next week or two, a bullish 50/200 EMA cross should emerge, signaling a new bullish trend. Total long/short open interest on Bitfinex for the LTC/USD pair (top panel, chart below) is net short. There is an active bearish divergence on RSI and volume suggesting an interim term local top as bullish momentum is beginning to wane.

The historic volume profile (horizontal bars) shows a high volume area at US$53, which will now likely 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.

In early February, LTC breached a 315-day bearish PF with anchor points in December, March, and May 2018. A large single bullish candle suggests a clean invalidation of the previous bear trend. Since then, price has formed a Rising Wedge bearish reversal chart pattern. The hallmarks of this structure include higher highs and higher lows in a tighter and tighter range with descending volume. Price will likely pullback soon, finding support at the base of the Wedge around US$40-US$44.

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.

Current Cloud metrics on the daily time frame, with doubled settings (20/60/120/30) for more accurate signals, are entirely bullish; price is below Cloud, Cloud is bullish, TK cross is bullish, and Lagging Span is above Cloud and in price. Cloud signals have not been this bullish since December 2018. Any pullbacks will likely find support at the Kijun, currently at US$47.

Lastly, the LTC/BTC pair on the daily chart has a bullish Cloud with price above the 200EMA. The 50/200EMA bullish cross occurred on February 13th signaling an end to the 242-day bear trend. There is also a bearish divergence on both volume and the RSI, suggesting bullish momentum is waning and a pullback is likely soon. Price has also recently reached the 50% retrace level from the February 2018 high to December 2018 low, adding to bearish confluence in the near term.

Conclusion

Fundamentals suggest network use in terms of both the number of transactions and the value of those transactions continues to stagnate and hold near yearly lows. Developer activity on the main GitHub repo has been nearly non-existent over the past few months but the next Litecoin Core upgrade is expected sometime this year. Additionally, protocol upgrades enabling confidential transactions could fuel a speculative rally later this year. The most important price momentum is likely the block reward halving in August this year.

Technicals suggest a distinct end to the multi-month bear trend on both the LTC/USD and LTC/BTC pairs. However, both pairs are showing signs of waning bullish momentum with the high likelihood of a pullback in the near term. These pullbacks will likely test the previous resistance at the US$40-US$50 and 0.011 BTC – 0.012 BTC zones. Any further upside will likely reach for the next psychological resistance of US$100 and 0.02 BTC.

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