Thursday, February 29, 2024

Litecoin price at risk of a 30% drop if key LTC futures historical trend repeats

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With less than two weeks until Litecoin’s halving, when the miner’s block subsidy shall be minimize in half, merchants are questioning whether or not the extra shortage impact shall be sufficient to maintain the LTC worth above $90. 

Litecoin’s (LTC) worth has declined by 19% within the final 18 days, but it surely has proven a optimistic 31% efficiency this 12 months. Notably, most good points occurred between June 29 and July 2, with a 34% rally pushing the value to a 14-month excessive of $115.

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Litecoin/USD 1-day worth at Coinbase, 2023. Supply: TradingView

Nonetheless, there’s an alarming statistic coming from the derivatives market that signifies a pointy correction is probably going underway.

Historic information doesn’t favor Litecoin bulls

Every of the earlier three situations the place Litecoin futures open curiosity dropped beneath $500 million precipitated worth drops of 38% or greater, which doubtlessly matches the present state of affairs.

Litecoin futures’ mixture open curiosity in {dollars} from June 29 ($300 million) to July 2 ($615 million) exhibits there was a major surge, indicating elevated demand for leveraged futures contracts.

On July 2, Litecoin’s worth reached a 14-month excessive however subsequently declined 20% to $92. Nonetheless, the regarding side is Litecoin’s open curiosity remaining above the $500 million mark. This implies patrons added margin to keep away from liquidation, but the chance of a pointy correction persists.

Litecoin futures mixture open curiosity in USD over the previous 12 months. Supply: CoinGlass

Increased energetic contracts (open curiosity) are usually optimistic, enabling traders who require a selected market measurement to take part. Even when it’s not essentially bullish for worth momentum, it permits for bigger worth swings as a result of leverage and potential liquidations when a dealer’s place is closed as a result of a scarcity of margin.

A glance again on the November 2021 crash and open curiosity

Litecoin’s open curiosity dropping beneath the $500 million threshold appears a dependable indicator of traders’ diminished curiosity, and the three newest occurrences affirm the thesis, as its worth confronted drastic corrections in every occasion.

Litecoin futures mixture open curiosity in USD, late 2021. Supply: CoinGlass

On Nov. 10, 2021, Litecoin’s open curiosity surpassed $500 million, coinciding with a six-month worth excessive of $289. Apparently, Litecoin’s worth crashed 48% within the 24 days after open curiosity dropped beneath $500 million on Nov. 14, 2021.

Litecoin/USD 1-day worth at Coinbase, late 2021. Supply: TradingView

Beforehand, Litecoin’s open curiosity had surged however failed to interrupt the $500 million mark, and even a 40% worth achieve to $232 in early September couldn’t break that barrier.

Additional confirming the relevance of open curiosity, two different situations occurred in 2021 between February and June, marking vital drawdowns after breaking the futures open curiosity $500 million threshold.

Related occasions in February 2021 and Might 2021

Litecoin/USD 1-day worth at Coinbase, early 2021. Supply: TradingView
Litecoin futures mixture open curiosity in USD, early 2021. Supply: CoinGlass

On Feb. 8, 2021, Litecoin’s open curiosity surged above $500 million, marking a 64% worth achieve, which peaked at $247 on Feb. 20, 2021. Nonetheless, on the identical day, open curiosity dropped beneath $500 million, resulting in a 38% worth decline within the subsequent eight days. Notably, the $200 psychological worth help held for 5 days earlier than the Litecoin worth declined to $142.

Once more, on Might 9, 2021, Litecoin’s open curiosity fell beneath $500 million after 49 days. It reached an all-time excessive of $409 throughout that interval, adopted by a 71% correction in simply 13 days, settling at $118.

Although causation can’t be drawn from occasions of over 19 months in the past, it’s important to control Litecoin’s open curiosity. If it declines from the present $500 million stage, historical past suggests a possible 30% drawdown from $94 to $62.