Nick Chong · 7 days ago · 2 min read · Insights via Grayscale Investments
Litecoin › Price Watch
As Litecoin’s halving approaches, will LTC’s price surge, correct, or consolidate?
Disclaimer: This article contains technical analysis, which is a methodology for forecasting the direction of prices through the study of past market data, primarily price and volume. The content presented in this article is the opinion of the author. None of the information you read on CryptoSlate should be taken as investment advice. Buying and trading cryptocurrencies should be considered a high-risk activity. Please do your own diligence and consult with a financial advisor before making any investment decisions.
Five days from today, Litecoin will go through a process called halving. This is a fixed event that occurs every four years after 840,000 blocks are mined, reducing block rewards by 50 percent. As the date approaches, how will LTC trade?
Litecoin Technical Analysis
At the moment, it seems like Litecoin could be mimicking its behavior prior to the 2015 halving.
Four months before LTC went through its first block rewards reduction, it experienced a rapid increase in market valuation. The cryptocurrency went up 590 percent to peak at $8.97 only 47 days before the event. Then, it went through a 73 percent correction that took it down to $2.40 one day before the halving actually occurred. LTC spent the following months trading between $2.87 and $3.24.
Similar to 2015, six months ago Litecoin went through an exponential upswing that took it up 552 percent. 44 days before the halving, LTC reached a high of $147 and then plunged 49 percent. Today, Litecoin seems to be trading within a $20 range just a few days before this year’s halving. If history repeats itself this cryptocurrency could be doomed to spend the following months staggering between $80 and $100. But, is it likely?
Based on the 1-month chart, Litecoin could be at the cusp of a new bull market. The moving average convergence divergence (MACD), which is commonly used to follow the path of a trend and calculate its momentum, recently had a bullish cross between the 12-month exponential moving average and the 26-month exponential moving average—a strong positive signal.
Along the same lines, the Parabolic SAR (which is displayed as a series of dots that helps identify potential reversals in the price movement of an asset by showing the direction of the trend) also gave a bullish signal, positioning itself below the price of LTC last month. The last time the Parabolic SAR signaled a trend change from bearish to bullish was in March 2017, which was followed by a 9,700 percent rally that ended in the all-time high of December 2017.
Similar to the Parabolic SAR, the first time a golden cross developed between the 7 and 30-month moving average was in October 2016 ,resulting in a 9,760 percent upswing from a low of $3.76 to a high of $370.78. Now, a golden cross appears to be forming once again, indicating that Litecoin is at the early stage of its next bull run.
Even though everything on the 1-month chart seems to point to Litecoin preparing for a multi-month bullish breakout, the 1-week chart has indication of a further correction before the continuation of the bullish trend.
Based on the Fibonacci retracement indicator (which is composed of horizontal lines that refer to areas of support and resistance associated with a percentage based on how much of a prior move the price has retraced) LTC has been consolidating over the last two weeks between the 38.2 and 50 percent Fibonacci retracement area.
Since the current consolidation phase has taken place after the recent 48 percent pullback that took this cryptocurrency from $147 to $76, a bear pennant could be developing under this timeframe. This is considered a continuation pattern that could lead to a breakout in the same direction as the initial movement. As a result, this bearish formation forecasts a 25 percent drop to around $66, which is taken by measuring the height of the flagpole.
Such a correction will take LTC to the 61.8 percent Fibonacci retracement zone, which is seen by many traders as the ‘golden’ retracement area. This Fibonacci retracement level will represent a pivotal point for Litecoin’s trend because it suggests a rebound, which may allow the uptrend to continue. However, a break below it is a strong signal of a trend reversal from bullish to bearish.
In the meantime, Litecoin could be on its way to retest the 38.2 percent Fibonacci retracement area, considering that a descending triangle is forming on the 1-day chart.
Although descending triangles are usually considered bearish continuation patterns, the market psychology can change as the pattern progresses towards the apex leading to a bullish breakout. This is what could be happening on the 1-day chart since LTC is moving outside of the descending triangle in an upward direction. Thus, this cryptocurrency could be targeting $107 in the following days, which is given by measuring the height of the triangle.
In addition, the TD Sequential Indicator gave a buy signal in the form of a red nine forecasting a one to four day bullish impulse. The bull signal will be confirmed if tomorrow’s candlestick is a green two trading above today’s green one candle.
If the buying pressure accelerates in the upcoming days as Litecoin reaches the target given by the descending triangle, it could try to test the 38.2 percent Fibonacci retracement area. This level could be expected to act as a strong barrier containing the price of LTC from a higher push, taking it back down to the 50 or 61.8 percent Fibonacci retracement point.
Nonetheless, a break above the 38.2 percent Fibonacci retracement zone could take this cryptocurrency up to the 23.6 percent Fibonacci retracement level, which will in turn invalidate the bear pennant seen in the 1-week chart.
As a result, the 38.2 and 50 percent Fibonacci retracement area, where Litecoin has been trading for over the last two weeks, is significant to its price. This Fibonacci retracement zone will determine whether LTC will surge, correct, or consolidate in the near future.
Recent research conducted by Strix Leviathan concluded that the majority of tokens that go through block reward reduction events do not experience outsized volatility, or returns, before or after a halving. Even if this is the case, so far, Litecoin seems to be following the path that it went through in 2015 before its first halving.
Whether its a result of the “shift in supply and demand dynamics” or “increasing levels of speculation within the asset class,” the fact is that this cryptocurrency has gone up 552 percent since the end of last year.
As it seems like history could be repeating itself, LTC could soon enter a consolidation phase for the following months before a breakout occurs. Nonetheless, the 1-month chart is signaling that a new bull market could soon start for this cryptocurrency while the 1-week chart indicate there will be a further correction.
It remains to be seen if Litecoin is able to break above or below the 38.2 and 50 percent Fibonacci retracement zone, which will confirm the direction of the trend.