Litecoin (available on Coinbase) (LTC) is up over 100% since February 2nd. The market cap now stands at US$11.7 billion, with US$2.33 billion traded over the past 24 hours.
LTC has consistent block times near 2.5 minutes, with very few unconfirmed transactions, and transactions per day have decreased sharply recently. The network value to estimated on-chain daily transactions (NVT) ratio has therefore reached historic lows.
The NVT ratio can be used to assess the network’s relative utility over time, although NVT is difficult to compare between coins which use different transaction types. The LTC NVT is among the lowest of all coins, based on available data, suggesting the coin is underpriced based on its utility. Only Dogecoin (Doge) and Cardano (ADA) have a lower NVT.
LTC hash rate has exploded over the past year, largely mirroring its valuation, which directly affects mining profitability. The LTC consensus algorithm uses Scrypt, as opposed to SHA256 used by Bitcoin (available on Coinbase) (and some others). LTC had been considered “ASIC-resistant” until Scrypt ASICs were developed, which allowed for the sharp increase in hash rate. The next block reward halving date is due in August 2019, at which point miners will generate 12.5 LTC per block.
The creator of LTC, Charlie Lee, announced an interim roadmap on December 20th, which includes increasing merchant processors, further wallet development, LTC adoption on a goods trading platform, and one “surprise.” The LTC core protocol developers then announced a new version candidate on February 8th. Highlights include fork safety enhancements and lowering the minimum relay fee.
In the interim, an LTC fork called Litecoin (available on Coinbase) Cash (LCC) was announced on February 3rd. The project has no affiliation with the Litecoin (available on Coinbase) Core developers or project. The LCC fork is scheduled for block 1371111, on or around February 18th. Every Litecoin (available on Coinbase) holder will receive 10 LCC for every 1 LTC they own, giving the new blockchain project 10x the maximum supply. Charlie Lee quickly called the fork a scam.
The LCC fork will use SHA256 as opposed to Scrypt, according to the website, as “there is no fast, cheap SHA256 coin with good difficulty adjustment. SHA256 miners have little practical choice of hashpower destination, and if they do mine blocks they’re being paid in a currency with 10 minute block times.” The LCC network will retarget difficulty every block using the DASH project’s DarkGravity V3 algorithm. The new cryptocurrency also includes SegWit support and replay attack protection, with new address prefixes to prevent confusion and inter-chain issues.
While news of the upcoming fork has peppered the news, more and more merchant processors have been adopting LTC payments. A new platform for facilitating Litecoin (available on Coinbase) payments, LitePay, was recently released to ease merchant adoption. One of the largest companies in the industry, Coinbase, subsequently announced a competing platform. Coinbase Commerce facilitates payments in a range of cryptocurrencies, and benefits from being part of the extensive Coinbase ecosystem.
Litecoin (available on Coinbase) exchange traded volume is led by Bitcoin (available on Coinbase) (BTC), U.S. Dollar (USD), and U.S. Dollar TETHer (USDT). The USD volume share is currently sTron (available on Binance)gly led by GDAX suggesting new money is likely on-ramping directly into LTC from fiat. A Korea Won (KRW) premium persists as news that the South Korea government is unlikely to ban cryptocurrency trading entirely.
Technical Analysis
It’s important to assess the status of the trend following a large pullback. This can be done with indicators including Ichimoku Cloud and Exponential Moving Averages (EMA), alongside classic chart patterns and candle structure.
Despite the 76% pullback, price remained on the bullish side of long-term support. On the weekly chart, there is a bullish reversal candle pattern, known as a tweezer bottom. The pattern will be confirmed with a green weekly close on the following candle. A long position can always be entered when the second candle does not make a lower low, but this brings more risk.
Ichimoku Cloud metrics on the daily chart, using singled settings (10/30/60/30) for faster signals, are all currently bearish. However, there were several touches of the 200EMA (white) indicating a reversion to the mean. There is also an upcoming Kumo twist (near today’s date). This zone is a region with no support or resistance. If price is below the Cloud when the twist when it occurs, the twist will act as a magnet for upward momentum.
Cloud metrics on the daily chart, using doubled settings (20/60/120/30) for more accurate signals, are also all bearish. However, a reversal was suggested by the distance of the Tenkan from the Kijun, known as a C-clamp. Current resistance sits around US$250-US$255 based on the Kijun and the point of a previous triangle breakout to the downside.
A Pitchfork with anchor points in June and September shows a sTron (available on Binance)g bounce off of the 1.618 extension. Price has now been rejected at the upper and lower quartile, marking this as sTron (available on Binance)g reversal zone. Price will consistently attempt to return to Pitchfork mean (red).
Cloud metrics on the four-hour chart are all bullish. Price exploded after the Kumo breakout, which also broke the diagonal resistance followiof a ‘W’ double bottom. The 50/200EMA remains bearish but will likely cross bullish within the next few days. There is typically a pullback to the 200EMA after the bullish EMA cross, before the trend continues upwards. Bids at the 200EMA would be an optimal entry point.
The previous triangle, which failed to hold as support on January 15th, provides horizontal resistance around US$255 (dotted red below). Triangles typically break support or resistance when 75% full or greater, 86% in this case.
The LTC/BTC ratio has broken through multi-month resistance, making a new local high, after a tight consolidation pattern that is reminiscent of a bull flag. The 1.618 Fibonacci extension and measured move, using the base of the flagpole and recent high, yield targets of 0.029BTC and 0.035BTC respectively.
Conclusion
While utility and development continue to provide momentum, the current buying frenzy is likely connected to the upcoming Litecoin (available on Coinbase) Cash fork, and the perceived promise of free money for investors when the blockchain launches. It is not uncommon for euphoric buying to occur pre-fork. Speculators typically hold until the blockchain forks, and will then immediately sell either coin, or both. If LCC is driving Litecoin (available on Coinbase) buying, expect a swift drop in price following the fork.
Technicals support a sTron (available on Binance)g reversal in the micro bearish trend following the 75% selloff. Price is currently near the 50% retracement of the down move with several other points of confluence suggesting sTron (available on Binance)g resistance at the current price. Further upside is likely in the near term until the LCC fork. A pullback to the four hour 200EMA will likely occur after the LCC fork. The macro trend continues to be bullish.