The LTC/BTC Conundrum
Updated
Well well well, at this point, everyone is probably losing patience with Litecoin. But selling now might end up being a huge mistake, even though I am also tempted to do so. I even feel like there are some other coins that could provide better opportunities for the final leg of this bull market. Nevertheless, I'm holding this as a trading position, with the sole intention of selling to increase my other positions (Ethereum, in particular). I have other coins for "moonshot" gains. I do think it's important to watch Litecoin, as a canary in the coal mine for the performance of other altcoins, and particularly Bitcoin dominance. Dominance has still not broken below the 60% level. If it does, I think LTC/BTC will do well.
This chart shows the Litecoin/Bitcoin ratio for the last 7 years. We can clearly see that there are short periods of impressive ratio improvement, often followed by very long periods of decline. The weekly MACD is losing momentum to the sell side, and is on big upside move away from confirming a bullish cycle. The yellow vertical lines mark Litecoin halvings. The halving is the moment when the block reward for mining decreases by half. Therefore, it requires more energy to produce the same amount of Litecoin. It becomes more scarce as a result. This is the same principle behind Bitcoin's price appreciation over time. A major difference between the two cryptocurrencies is actually that Litecoin is MORE expensive to produce, due to the Scrypt algorithm, which is more complex than the algorithm Bitcoin uses. Although transactions are comparatively cheap, it is more expensive to produce. This does not make it particularly attractive for me, but I decided to jump at this trading opportunity.
Despite its drawbacks, Litecoin does offer some advantages over other top cryptocurrencies, and there are reasons to see it as undervalued within the market:
1) It has the Bitcoin brand, and staying power.
2) Strong economics, with a supply of only 84 million coins, and halvings built into its design.
3) There will be a privacy layer implemented this year. The code has just been released. Can be a short-term catalyst.
4) Compared with Bitcoin and Ethereum, it's cheaper and faster to send.
5) Demand clearly exists for Litecoin at the institutional level. For the past few weeks, Grayscale has been selling some Bitcoin and Ethereum in favor of more Litecoin.
From a market cycle perspective, I'm waiting to see if Litecoin moves up here on the ratio, just as it did 4 years ago in March. What seems different here is that Bitcoin appears to be further along in its own cycle than it was in March, 2017. This has pulled Litecoin price up, though the ratio continues to stagnate and buckle under what seems to be unrelenting sell pressure. In 2017, Bitcoin had only just started breaking its previous all-time-high, and as LTC declined on the ratio, it didn't move up at all in USD value. So, Litecoin is actually in a better position against the dollar than it was 18 months after its 2015 halving. Here, Bitcoin are roughly 3x its previous ATH already. This has helped boost LTC price. As marked by the blue lines on my chart, the March 18 months after the previous halving is when Litecoin began to outperform Bitcoin.
Here's the LTC/USD chart from the previous cycle, showing the stagnation until March:
Something else to watch: The on-balance volume is declining as the ratio declines. This tells me the selling momentum is real on this pair. People are letting go of their Litecoin. However, there is accumulation occurring on the USD pair. To me this means that LTC is in a long term decline against Bitcoin, and that it may not ever reach a new high on the ratio. This is one of the reasons I'm looking at this as a trade, and not a long term investment. If the ratio goes up soon, it will need to be on the back of massive whale activity. This is needed to overcome the strong selling pressure.
If you look at my previous analysis, I am also looking at LTC's performance against Ethereum.
My trade was to add to my LTC position with ETH at the green X. I am waiting to exit once Litecoin confirms a new cycle. We'll see what happens! History might not repeat, but as I listed above, there are several reasons to be bullish. I plan to take profit in stages.
This is not financial advice! Anything I write on here should be taken purely as documentation of my own experience in this market. This is meant for speculation, education, and entertainment only.
-Victor Cobra
This chart shows the Litecoin/Bitcoin ratio for the last 7 years. We can clearly see that there are short periods of impressive ratio improvement, often followed by very long periods of decline. The weekly MACD is losing momentum to the sell side, and is on big upside move away from confirming a bullish cycle. The yellow vertical lines mark Litecoin halvings. The halving is the moment when the block reward for mining decreases by half. Therefore, it requires more energy to produce the same amount of Litecoin. It becomes more scarce as a result. This is the same principle behind Bitcoin's price appreciation over time. A major difference between the two cryptocurrencies is actually that Litecoin is MORE expensive to produce, due to the Scrypt algorithm, which is more complex than the algorithm Bitcoin uses. Although transactions are comparatively cheap, it is more expensive to produce. This does not make it particularly attractive for me, but I decided to jump at this trading opportunity.
Despite its drawbacks, Litecoin does offer some advantages over other top cryptocurrencies, and there are reasons to see it as undervalued within the market:
1) It has the Bitcoin brand, and staying power.
2) Strong economics, with a supply of only 84 million coins, and halvings built into its design.
3) There will be a privacy layer implemented this year. The code has just been released. Can be a short-term catalyst.
4) Compared with Bitcoin and Ethereum, it's cheaper and faster to send.
5) Demand clearly exists for Litecoin at the institutional level. For the past few weeks, Grayscale has been selling some Bitcoin and Ethereum in favor of more Litecoin.
From a market cycle perspective, I'm waiting to see if Litecoin moves up here on the ratio, just as it did 4 years ago in March. What seems different here is that Bitcoin appears to be further along in its own cycle than it was in March, 2017. This has pulled Litecoin price up, though the ratio continues to stagnate and buckle under what seems to be unrelenting sell pressure. In 2017, Bitcoin had only just started breaking its previous all-time-high, and as LTC declined on the ratio, it didn't move up at all in USD value. So, Litecoin is actually in a better position against the dollar than it was 18 months after its 2015 halving. Here, Bitcoin are roughly 3x its previous ATH already. This has helped boost LTC price. As marked by the blue lines on my chart, the March 18 months after the previous halving is when Litecoin began to outperform Bitcoin.
Here's the LTC/USD chart from the previous cycle, showing the stagnation until March:
Something else to watch: The on-balance volume is declining as the ratio declines. This tells me the selling momentum is real on this pair. People are letting go of their Litecoin. However, there is accumulation occurring on the USD pair. To me this means that LTC is in a long term decline against Bitcoin, and that it may not ever reach a new high on the ratio. This is one of the reasons I'm looking at this as a trade, and not a long term investment. If the ratio goes up soon, it will need to be on the back of massive whale activity. This is needed to overcome the strong selling pressure.
If you look at my previous analysis, I am also looking at LTC's performance against Ethereum.
My trade was to add to my LTC position with ETH at the green X. I am waiting to exit once Litecoin confirms a new cycle. We'll see what happens! History might not repeat, but as I listed above, there are several reasons to be bullish. I plan to take profit in stages.
This is not financial advice! Anything I write on here should be taken purely as documentation of my own experience in this market. This is meant for speculation, education, and entertainment only.
-Victor Cobra
Note
***when looking at the MACD - ONE big upside move from confirming a bullish cycle. Not ON. My current keyboard sucks, and the E key is sticky, but thankfully I'll be getting a new laptop in a couple of weeks. I should be able to do some live streaming as well.Note
Still no sign of the sell pressure letting up. Buyers can step in at any point, but they might wait until a test of the smaller wedge resistance turned support. A lot of people might also be expecting a final flush to the 0.003 level. Let's see if it gets there. Note
Continuing to slide down towards the previous wedge resistance. Let's see if we get a reaction soon. Still holding the position, though it looks very weak. Looks can be deceiving, particularly in crypto. Interested to see what happens over the next week. Note
Something's brewing here. Often when I see declining volume in a downtrend followed by a green candle on larger volume, it indicates seller exhaustion. Note
Is this finally it? Note
A wild bounce appeared. Let's see if it can finally break the downtrend. Note
Of course, rejected at the downtrend. But if the weekly closes here, that gives the opportunity for LTC to break out this coming week and head to the next resistance at 0.0067. Note
Wow, look at that! Coiling right up against the long term downtrend. This is the most bullish LTC/BTC has looked in a while. Buyers haven't been quite as scared off this time by the resistance. Let's see if it blows! Hopefully Bitcoin doesn't ruin the show. Note
Looks like we had a successful breakout. As long as Bitcoin can hold up here and maintain a bullish trend (even if it continues to consolidate near the 100 day MA), Litecoin should be good for continuation on the ratio. What I don't want to see is Bitcoin break harshly below the 100 day MA (currently slightly below 50k).
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