Is History Repeating For Litecoin?

LTC/BTC price action has been continuing a consistent, downwards grind into the support band that formed the 2017 bottom and preceded the price of Litecoin exceeding 0.02 BTC (50:1 LTC:BTC ratio) in late 2017. In the past month it has even broken below this support band and printed a new ATL. Can such lows be expected to hold, and are they supported by the fundamentals? Below is an all-time chart showing the key price structures on LTC/BTC since its inception:

Price History

Following the first ever significant distribution range on Litecoin (see above chart), a low volume downtrend began that culminated in a significant and sustained increase in sell volume between December 2020 and February 2021 as Litecoin struggled to hold, and eventually lost, its 0.004 BTC support level.

Capitulation events such as this very often signal the bottoms of long term bear markets, and market makers will often deliberately push prices into these areas to trigger panic and create an opportunity to accumulate. This is what the charts indicate to me is happening right now.

It is entirely possible that the sellers who capitulated in this zone were the same buyers who benefited from the deep wick on Binance in 2017 when a single large seller filled orders as low as 0.0001 BTC per LTC.

After that 0.004 BTC level was lost, two months of high buying volume occurred as an initial bounce back to 0.007 was followed through, but all gains made during those months bled away between June and October 2021. This indicates that the capitulation period continued throughout and beyond this speculative bounce.

Why the long downtrend?

My opinion is that Litecoin suffered reputational damage and/or lack of speculative attention since the negative news and price action in late 2017 and early 2018. The sale of LTC by its founder was a fear-generating event greatly exacerbated by the infamous Crypto Winter bear market.

The founder, Charlie Lee, continues to work exclusively on Litecoin and has always insisted that his divestment was in aid of decentralization and to prevent Litecoin from being classified as a security. He appears to have been sincerely hurt by allegations of profiteering from within the crypto community who accused him of creating Litecoin to enrich himself. This is despite the fact that he mined all of his LTC in the same manner as everybody else during a widely-publicized fair-launch of the token. I think retrospectively, much of this animosity may be attributed to so-called 'toxic BTC minimalism' which asserts that attacking other cryptocurrency projects is a viable way to advance the cause of Bitcoin.

Charlie Lee is reported to have held significantly less than 1% of all Litecoin at the time of his sale. This would mean he was never a Litecoin 'whale', and yet, his actions still lead to speculation that the LTC project as a whole was at risk of failure.

I therefore believe all negative consequences of his decision are well and truly in the past - although the positive consequences remain, such as protection from the SEC, lack of a Single-Point-of-Failure and a healthily decentralized and dispersed supply.

Litecoin bears continue to speculate that the Litecoin project is at risk of collapsing by trading it below the all-time-lows it experienced when the aforementioned fears were at their highest.

Is this wise? Fundamental analysis makes short work of such bearish speculation - network strength is on or at all-time-highs and the number of transactions have been steadily rising versus BTC since 2019, as has the average transaction value. The number of new Litecoin addresses being created has been outstripping Ethereum for some time, even despite the NFT boom. These metrics could be collectively thought of as 'Adoption Dominance' metrics, with all on-chain evidence pointing to Litecoin growing in adoption versus Bitcoin AND other cryptocurrencies, while price continues to trend in the opposite direction.

Despite continuously improving fundamentals and steady onboarding of new Litecoin users and holders, the mood of speculators seems to have remained bearish, independent of real-world adoption milestones and developments made by the LTC blockchain.

This is a very significant divergence that should be of huge interest to a long term and patient investor.

What next?

An incredibly important lesson for any investor to learn is that users drive long term price action, while speculators aim to predict the actions of those users in order to profit. In this sense, users are responsible for long term trends while traders are responsible for short and medium term trends based on speculation and the prevailing emotions of the time.

The volatility caused by traders who do not intend to use the coin, is elastic. The greater the deviation of a mid-term trend from the long-term adoption curve, the more aggressively the price returns to the mean when the speculative trend breaks. Litecoin's history is full of such events, possibly due to the persistent myth that there can be only one cryptocurrency filling the same niche as Bitcoin. Time is only proving this false as Bitcoin dominance by market cap and usage, continues to trend downwards, and as Litecoin adoption continues to make gains on Bitcoin adoption.

As the wider cryptocurrency market has repeatedly shown, a blockchain with investors but no users, is destined to collapse. A user's first allegiance is to themselves, so if they need to move value on-chain they will select the fastest, most secure and most accessible cryptocurrency. Users therefore exhibit less loyalty than investors, who understand that re-making decisions is often detrimental. The battle for everyday user convenience is one that Litecoin is purpose-built to win, and its 10-year longevity and 100% uptime is a startling testament to that, as is the fact that it remains the second-most used cryptocurrency for purchases on BitPay, behind BTC.

Looking to the future, the addition of MWEB (MimbleWimble Extension Blocks) will make Litecoin an exponentially more valuable coin to the average user. I may write a further article on the importance of fungibility and everyday, practical privacy (as opposed to complete opacity such as that seen with Monero and other full-privacy coins) with particular focus on why Litecoin + MWEB is so much more valuable than Litecoin as it exists currently.

Very briefly, MWEB cuts transaction fees by as much as 99%, hides users' balances and transaction quantities from prying eyes, and features an inbuilt mixer that prevents transactions being traced directly from the blockchain. The fact that sophisticated de-mixing techniques CAN be applied to these transactions by experts, means that LTC is less likely to attract the ire of regulators than total privacy chains like Monero and Verge and less likely to attract criminal activity.

What is the potential of a successful reversal?

As speculators maneuver themselves into a corner adopting short positions in an ATL range, they are making themselves highly vulnerable to a GME-style short squeeze driven by everyday users and believers in Litecoin - who are as stubborn as any Bitcoiner. This could push values to the 0.10 - 0.15 BTC range, although I expect a more stable long-term price to range between 0.05 and 0.10 BTC. Having discussed this with many prominent Litecoin bears, I am led to believe that they would double-down on their short positions and increase their risk, rather than flip to a bullish outlook on Litecoin based on its fundamentals.

When users Like The Coin and speculators do not, it is time for long term investors and swing traders to move in and turn the tables.

I predict a lot of excitement in the months and years ahead. Try downloading a Litecoin wallet such as Litecoin Core and practice transacting with LTC directly on-chain - you will soon understand why so many users opt to transact and store their wealth in digital silver.