Litecoin Price Analysis – Lee exits at interim top

Litecoin (LTC) made a new all time high in mid-December, and has cooled off slightly since. The market cap currently is holding at a steady US$16.88 billion with US$1.52 billion in trading volume over the past 24 hours.

LTC has also seen increasing transactions per day throughout December, as the Bitcoin and Ethereum networks have been clogged or unusually expensive.

The LTC network value to transactions ratio remains lower than that of both Bitcoin and Ethereum, suggesting it is relatively undervalued. The metric was devised by Willy Woo and Chris Burniske, and is similar to Price-Earnings ratios when selecting stocks.

Hash rate and difficulty remain stable at their respective highs, with a block reward halving due on August 10th, 2019. The stability allows for the network to maintain 2 minute and 30 second block times, 4x faster than Bitcoin. As a result, LTC has virtually no unconfirmed transactions, compared to Bitcoin’s ~200,000. LTC average transaction fees are currently at an all time high of US$1.50 per transaction.

Charlie Lee, the creator of Litecoin, announced yesterday that he has sold all of his litecoin to prevent any perceived conflict of interest when talking about the currency. Lee states that he donated the funds to undisclosed entities. The reaction to the news was mixed among the community with some encouraging Lee to do whatever he wanted with his money while others would have rather seen the funds in a blind trust or timed vault with a scheduled release.

Rumors have been circulating that Lee has been hired by Facebook to integrate payments. While these rumors are currently unfounded, Coinbase recently hired David Marcus, VP of messaging products at Facebook, to further develop the Coinbase mobile app.

LTC trading volume has been led by the Bitcoin (BTC) and the US Dollar (USD) pairs. OKEX currently leads the LTC/BTC pair by volume with Bittrex, Poloniex, and Binance sharing an essentially equal portion of the top volume. GDAX and Bitfinex hold 55% and 31% of the LTC/USD volume respectively.

Technical Analysis

The current price is being held in a range consolidation pattern following an all time high of US$420. The range has begun to form a bullish continuation pattern on descending volume, known as a bullish pennant.

Triangle accumulation patterns such as this occur often through an uptrend, signaling a prolonged markup phase. These triangles also typically break when around ¾ full, or in this case between December 23rd and January 1st.

The 1.618 fib extension and measured move of the pattern are both ~US$600, or 70% from the breakpoint. The stop loss for this long trade would be below the most recent rejection wick at US$275.

The Ichimoku Cloud on the four hour chart, using doubled settings (20/60/120/30) for more accurate signals, shows multiple Kijun bounces during consolidation, suggesting bullish continuation. Kijun bounces represent 50% of the trend and should be thought of as a mean reversion test for support.

The Cloud uses a moving-average-type system with dynamic support and resistance to make projections of key zones, as well as capturing 80% of any given trend. As long as the price remains above the Cloud, sentiment remains bullish. Price in the Cloud indicates a neutral trend, and below the Cloud indicates a bearish trend.

When the Tenkan (blue) is over the Kijun (red) sentiment is bullish, as shown below. When the Kijun is over the Tenkan sentiment is bearish. When the Lagging Span (dark green) is above the Cloud and current price sentiment is bullish, as shown below. When the Lagging Span is below the Cloud and current price sentiment is bearish.

The best entry signals when using this indicator occur when the trend is obvious, but 1 or 2 of the signals have yet to become confluent on a higher timeframe trend.

As the price gets further and further away from Kijun (red), it will eventually want to retest the mean as support. So either; price goes flat allowing the Kijun to play catch up, or, price falls towards the Kijun. There is no immediate indication of the outcome for the current cloud on this timeframe.

There is, however, a currently pending bearish TK cross, a long exit signal, which typically occurs during consolidation. A TK cross after a move is indicative of a trendless market, therefore, Cloud signals are indicating that the price is essentially flat. Should the trend resume, a long entry will occur after a bullish TK cross, following the bearish TK cross.

A multi-month Pitchfork indicates that the price is in the upper zone. This indicator projects a diagonal trend using three anchor points. The red median line (ML) represents the mean of the trend while the top and bottom zones represent overbought or oversold territory, respectively.

Although the price is sitting in the dangerously overbought zone, two things may happen. The first being a retest of the ML below US$200. The second possibility is a bullish invalidation of this pitchfork towards a new trend rate entirely. This has happened multiple times over the course of Bitcoin’s bull run since 2015.

Lastly, the LTC/BTC ratio is nearing the top of a range which previously represented a bullish consolidation period. The ratio broke below this level in early November and confirmed the bottom of the range as resistance twice. Now, back in the range, the prior target of 0.033-0.043BTC remains, should the 0.022BTC resistance level break. The ratio has not closed above 0.0222BTC since May 2014.

Conclusion

At first glance, Lee selling all of his coins may be troublesome, but remaining as a lead developer may be more important than holding LTC. Lee pledged to continue his work surrounding LTC indefinitely. Lee has played an integral role in the success of LTC thus far, with the addition of SegWit and Coinbase integration. Cryptocurrency integration to major social media platforms like Twitter, Instagram, and Facebook is not far from reality.

Technicals suggest further consolidation with a break around December 25th, although there will likely be light trading volumes until after the new year. The LTC/BTC ratio is gunning for new highs not seen since LTC inception.