Litecoin Price Analysis – Lee back at the helm

Litecoin is currently the sixth largest cryptocurrency, with a market capitalization of US$2.6b. The asset was recently selling for a record high price of ~US$90, before dipping to ~US$45, and has still given investors a 10x return over the past 6 months.

Litecoin (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. Lee sees BTC as digital gold, and LTC as digital silver.

Charlie Lee is a former Google employee who also happens to be the brother of Bobby Lee, the CEO of Chinese cryptocurrency exchange BTCC. Charlie also worked as an engineer at Coinbase, a cryptocurrency on-ramping service based in San Francisco, from 2013-2017. With his effort, this past year has helped LTC awaken both from a fundamental and technical point of view.

On March 10th, 2017, rumors spread that LTC was in the process of voting on Segwit activation, being one of the first coins to do so, and essentially woke the price chart from the dead. This occurred on the setting of the BTC civil war regarding SegWit and block size increases.

Lee had earlier announced his push for SegWit on January 6th in a blog post stating, “SegWit is not just a block scaling solution.” He wanted to set an example of what could successfully be done in the crypto community. Lee also discussed other SegWit benefits, such as Lightning Networks, which would make different cryptocurrencies more interoperable.

Lee also mentions atomic swaps in the post, which are on-chain transfers from one currency to another without an intermediary. Atomic swaps have a binary outcome, if the swap doesn’t occur, all funds are returned to each user. These types of transfers will likely be crucial for a truly decentralized exchange with adequate liquidity. Charlie continues to experiment with atomic swaps, most recently with Decred and Vertcoin.

LTC was then added to Coinbase with a fiat currency pair, on May 3rd, the third of its kind behind BTC and Ethereum. This is a direct on-ramp for an audience of what has become 10.5 million users, and is bound to be bullish news.

Later in May, LTC become the first coin to use the Lightning Network, an off-chain bidirectional payment channel, to transfer 0.00000001 LTC from Zurich to San Francisco in under one second.

On June 10th, 2017, Charlie announced that he was leaving Coinbase to pursue Litecoin development full time. This was perhaps the most bullish news of all. LTC has its creator dev back at the helm for the first time in years.

Aside from BTC, which may forever be a one-off, investors expect figureheads like Vitalik Buterin of Ethereum and Charlie Lee to continue pushing the envelope and making protocol improvements.

There are around 800 different cryptocurrencies available and many hundreds of ICOs around the corner, there is definitely an ‘adapt or die’ mentality amongst most coin agnostic investors.

On July 25th, Shaolin Fry, creator of BIP 148 or “UASF,” announced he was stepping away from Litecoin development. This had no measurable immediate effect on price, but was not bullish news. No project wants to lose an extremely competent and dedicated developer.

LTC transactions per day and hash rate have also increased substantially since the beginning of the year.

Transaction fees also continue to be a fraction of BTC’s transaction fees, even with the large uptick in network activity. LTC’s average transaction fee currently is ~US$0.02 whereas BTC’s average transaction fee is currently ~US$1.50.

Exchange traded volume is shared between the US Dollar (USD) and Chinese Yuan (CNY) markets, with BTC and USD tether pairs not far behind. The LTC/CNY price is markedly below other pairs, which currently offer LTC at around USD$50.

USD and CNY pair volume is led by GDAX and OKCoin China respectively. There is no volume on the Japanese Yen (JPY) exchanges. If an exchange like Bithumb enables a direct fiat pair, expect price to respond in a bullish direction.

Technical Analysis

LTC has been around for many years and is among the oldest coins in existence. It has a large swath of data to pour over, with plenty of useful signals on the weekly chart. Because USD volume accounts for the largest percentage of LTC trading, those are the charts that traders will be using for most of their analysis. LTC/BTC pairs also provide frequently valuable signals.

However, none of this occurs in a vacuum. For that reason it’s important to watch a variety of currency pairs. The largest volume pairs, percentage wise, are typically the market movers but actionable signals may occur on any pair.

On the LTC/USD weekly chart, there is a large bearish divergence, higher highs in price, and lower highs on the Relative Strength Index (RSI), a measure of momentum. This divergence is currently playing out and showing a large pullback from the ~USD$93 ATH. Divergences typically reset once momentum has reached ~50 on any oscillator, in this case RSI.

The wick to USD$31 likely represented both emotional capitulation and a thin orderbook unable to handle the volume with proper liquidity. That zone also represented the daily 200EMA, which is stereotypically used as a dynamic support by many traders.

The daily chart is also setup for a double top, currently half formed, if the psychological support of USD$50 holds.

Any form of an M top may occur, an inverted Adam and Eve or an inverted Adam and Adam are two viable options. Eve formation is characterized as occurring in a curved shape slowly over many trading periods, in this case many days. Certainly something to watch for in the near term.

The 1.618 fib extension of the bearish reversal pattern is around USD$25 which essentially also represents 0.0236 fibonacci retracement (not shown) of the the run up since April.

The LTC/BTC weekly chart tells a slightly different story. A descending volume profile, coiling RSI, and large channel suggest the formation of a bull flag or pennant. These consolidation patterns should be seen as continuation with a heavily bullish bias.

The measured move and 1.618 fib extensions suggest a target between ~0.034-~0.045 once the pattern resolves.

The daily LTC/USD singled Cloud shows a mixed bag of signals, which is best for pre-entry conditions. The trend certainly remains bullish due to price being above cloud. Future cloud has turned bearish for the first time since April. There was also a bearish TK cross several days ago, a long exit signal. A long re-entry signal will occur when future cloud twists bullish and a bullish TK cross occurs.

The four hour LTC/USD doubled Cloud shows a flat kumo at USD$63, or 50% of the range, which will act as a magnet for price.

An edge to edge long entry signal will also trigger once a candle closes within the cloud, the target being the flat kumo.

Conclusion

With an active and trailblazing developer like Charlie Lee back at the helm, the Litecoin protocol will likely continue to surprise the crypto community. Price and network metrics have increased substantially since the coin was risen from the dead after Segwit activation.

Technicals for LTC/USD suggest a retest of all time highs, USD$94 should signals on the daily cloud flip bullish. A double top may form in the coming days, signalling a large bearish move on resolution, with support around USD$25. The LTC/BTC pair shows heavy consolidation with a bullish bias towards a resolution target of ~0.034-~0.045.