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Anticipating the Effects of Litecoin’s Halving
The countdown has begun for Litecoin's halving, a process where the miner’s block subsidy will be in effect reduced by half. With fewer than 15 days remaining, speculation arises among traders as to whether the subsequent scarcity effect will facilitate LTC's price to be maintained above $90.
Surprisingly, Litecoin (LTC) experienced a 19% price decrease in the last 2 1/2 weeks but recorded an encouraging 31% progression this year. It's worth noting that the majority of these gains originated from June 29 to July 2, with a remarkable 34% surge pushing the price to a 14-month all time high of $115.
On a different note, the derivatives market unveils a concerning statistic, predicting a substantial correction in the making.
A Glance at Litecoin’s Past Performance
Historical data reveals that each time Litecoin futures open interest fell under $500 million, it triggered price decreases of 38% or more - a scenario that is becoming all too familiar.
The aggregate open interest for Litecoin futures in dollars from June 29 ($300 million) to July 2 ($615 million) indicates a significant uptrend, signifying a heightened demand for leveraged futures contracts.
July 2 saw Litecoin touch a 14-month pinnacle, but then witnessed a 20% drop to $92. Notwithstanding this, the persisting open interest above the $500 million margin is a matter of concern, as it signifies that buyers have enhanced their margins to prevent liquidation, all the while the peril of a steep correction remains.
November 2021 Crash and Open Interest Retrospection
A decline in Litecoin's open interest under the $500 million indication seemingly serves as a reliable warning sign of fickle investor interest. The most recent three events validate this hypothesis, given the heavy corrections in price encountered each time.
Intriguingly, on November 10, 2021, Litecoin's open interest managed to surpass $500 million, correspondingly marking a six-month price summit of $289. However, Litecoin's price plummeted 48% in the ensuing 24 days after the open interest fell below $500 million on November 14, 2021.
Assessing Past Events: February 2021 and May 2021
Distinctly identical scenarios were experienced in February and May of 2021, further affirming the critical role of open interest.
On February 8, 2021, Litecoin's open interest soared above the $500 million marker, registering a 64% price improvement on February 20, 2021 at $247. On this very day, there was a drop in open interest below $500 million, leading to a 38% price fall in the upcoming eight days.
Again, on May 9, 2021, Litecoin's open interest dipped below $500 million after 49 days, marking an all-time high of $409. This was followed by a harsh 71% correction in just 13 days, tapering off at $118.
While it would be hasty to draw constant conclusions from occurrences almost 19 months old, nonetheless, it's crucial to keep an eye on Litecoin's open interest. If it experiences a decline from the present $500 million, past events indicate a potential 30% pullback from $94 to $62.
