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

With less than two weeks until Litecoin’s halving, when the miner’s block subsidy shall be reduce 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 constructive 31% efficiency this yr. Notably, most beneficial properties 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

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

Historic knowledge doesn’t favor Litecoin bulls

Every of the earlier three cases the place Litecoin futures open curiosity dropped beneath $500 million induced worth drops of 38% or larger, which doubtlessly matches the present situation.

Litecoin futures’ combination 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. Nevertheless, the regarding facet is Litecoin’s open curiosity remaining above the $500 million mark. This implies consumers added margin to keep away from liquidation, but the chance of a pointy correction persists.

Litecoin futures combination open curiosity in USD over the previous yr. Supply: CoinGlass

Increased energetic contracts (open curiosity) are usually constructive, enabling buyers 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 an absence 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 buyers’ diminished curiosity, and the three newest occurrences affirm the thesis, as its worth confronted drastic corrections in every occasion.

Litecoin futures combination 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. Curiously, 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 acquire to $232 in early September couldn’t break that barrier.

Additional confirming the relevance of open curiosity, two different cases 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 Could 2021

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

On Feb. 8, 2021, Litecoin’s open curiosity surged above $500 million, marking a 64% worth acquire, which peaked at $247 on Feb. 20, 2021. Nevertheless, 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 assist held for 5 days earlier than the Litecoin worth declined to $142.

Once more, on Could 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 keep watch over Litecoin’s open curiosity. If it declines from the present $500 million degree, historical past suggests a possible 30% drawdown from $94 to $62.