Litecoin Price Analysis – Dev activity nose dives

Litecoin (LTC) is up more than 25% since dipping below US$50 on August 14th, but down 86% from the record high on December 19th. The LTC market cap is the 7th largest among coins tracked by bravenewcoin.com, at US$3.13 billion, with exchange-traded volume of US$337.99 million in the past 24 hours. Over the past month, LTC has underperformed most of the coins above a US$100 million market cap. Over the past 90 days, LTC has had the most positive price correlation with Ethereum among all top crypto assets by market cap.

Source: coin360.io

The HTC Exodus blockchain phone, announced in July, is now taking pre-orders with BTC and ETH only, although the phone will have LTC support. Charlie Lee, creator of Litecoin, is an advisor on the project, along with CEO and co-founder of Lightning Labs, Elizabeth Stark.

In August, Zulu Republic announced lite.im which will enable LTC transactions through SMS and Telegram messaging. On October 31st, lite.im went live on Facebook Messenger, allowing over two billion Facebook users to send and manage LTC. Between the HTC Exodus and lite.im, it’s likely that LTC payments on the lightning network will increase dramatically.

The current number of transactions per day on the network (line, chart below) stands at ~25,000, 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, currently at ~US$2,500, 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 increase 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, 45% of transactions sent have used SegWit.

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 121 pending transactions. Average transaction fees have declined to a new yearly low of US$0.05. The next release of Litecoin Core v0.17 will reduce fees by 10x, which forecasts an average transaction fee at half a cent.

The 30-day Kalichkin network value to estimated on-chain daily transactions (NVT) ratio (line, chart below) has been rising since January and now sits at an all time high. 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. The top 100 addresses currently hold 45% of the available LTC supply. LTC also has far fewer daily active addresses than either Bitcoin or Ethereum.

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 125 Litecoin groups on meetup.com with 42,000 members total. The /r/Litecoin subreddit has 192,316 subscribers and is ranked 618 based on total subscriber count.

Source: coinmetrics.io

The network currently has 261 active public nodes. Difficulty and hashrate have decreased since record highs in May and June, which is most likely fueled by a decrease in mining profitability. Mining profitability has increased slightly from a low on September 12th. Factors that influence mining profitability include; price, block times, difficulty, block reward, and transaction fees. Of the 84 million LTC to ever exist, 70.35% has been mined. The next block reward halving is set for August 2019.

Source: bitinfocharts.com

In regards to the LTC development roadmap, the litecoincore.org website is currently down and the LitecoinCore twitter account has not tweeted since May. The main repo for LTC on GitHub has had a cumulative 3 commits over the past 90 days and 749 commits over the past year.

Most coins use the developer community of GitHub, which was acquired by Microsoft for US$7.5 billion earlier this year. 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.

LTC has gained continued 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.

In May, Reddit CTO Chris Slowe mentioned re-enabling crypto payments on the platform, including the use of LTC, which may occur in 2019. Eris Exchange, a Chicago-based derivatives market, will also list LTC when they open a cryptocurrency market sometime in 2019. ErisX is backed by DRW Holdings Inc., Virtu Financial Inc. and TD Ameritrade Holding Corp.

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, IDAX, and HitBTC.

Google Trends for the term "Litecoin" remain down sharply over the course of the year and are sitting at a yearly low. 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. Additionally, according to Alexa, litecoin.org pageviews have declined substantially since January.

A 2015 study found a strong correlation between the google trends data and BTC price. A May 2017 study concluded that when the U.S. Google "bitcoin" searches increased dramatically, BTC price dropped.

Technical Analysis

Bitfinex open interest is net long, with longs increasing and shorts decreasing (top panel, chart below). A significant price movement downwards will result in an exaggerated move as the long positions will begin to unwind. Price has fallen 65% since the bearish 50/200 EMA cross on May 23rd. The bearish cross has been active for 170 days. There are no active RSI divergences. Although a bullish entry would not be warranted until a bullish 50/200EMA golden cross, a price move towards the 200EMA is possible simply due to mean reversion.

Over the past month, price has drifted out of the long standing bearish Pitchfork (PF), with anchor points in December, March, and May, which was established after the all time high in December. This invalidates the previous bear trend, suggesting neutral momentum. Price has essentially held the same US$15 range over the past 90 days. This high volume zone may act as a base for the next bull run, but if price does fall lower, the area with the most support based on the volume profile is US$18.

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 twelve hour time frame with doubled settings (20/60/120/30) for more accurate signals are bearish; price is below Cloud, Cloud is bearish but nearly bullish, TK cross is bearish but nearly bullish, and Lagging Span is below Cloud and in price. A traditional long entry will not trigger until price is above the Cloud. This would be the first candle above the Cloud on this time frame since February.

As the TK cross turns bullish and price enters the Cloud, a long reversal trade (yellow arrow) will trigger with an entry near ~US$55 with a target of ~US$71. This is known as an Edge to Edge trade. Strong horizontal resistance also sits between US$70-$75 based on historic price action.

The status of the current Cloud metrics on the daily time frame with doubled settings (20/60/120/30) for more accurate signals are also bearish; price is below Cloud, Cloud is bearish, TK cross is bearish and spread far apart, and Lagging Span is below Cloud and in price. The TK disequilibrium and RSI bullish divergence suggests oversold conditions with waning bearish momentum.

A falling wedge, or bullish reversal chart pattern, has also begun to form, with a maximum downside of ~US$43. The hallmarks of the pattern include a tightening range in a downward fashion. The pattern would carry a high probability target of US$64, or 50% retracement, with a maximum upside target of ~US$115, which matches previous support turned resistance.

Lastly, the daily chart for the LTC/BTC pair also shows a bear trend attempting to draw to a close. Price is attempting to flatten out, signalling a potential end of the several month bearish trend. Cloud metrics are entirely bearish, but a setup for an Edge to Edge trade (yellow arrow) is possible with a entry near 0.0085BTC and a target of 0.0101BTC.

Conclusion

Network use in terms of both the number of transactions and the value of those transactions continues to decline. This creates a picture of declining on-chain utility, hence the bearish and rising NVT ratio. Dev activity on the main repo has been non-existent in the past 90 days. A silver lining is the number of exchange and pair listings over the past few months, which gives traders increasing opportunities to speculate on the coin.

Technicals suggest waning bearish momentum with a lull in downward price action over the past 90 days. Trend indicators are showing a potential window for mean reversion to US$71 with a decision for bullish continuation from that point forward. This would be the first indication of a bullish trend since February.