Author

Marcel Pechman

Browsing

On-chain and trading data signal that traders have abandoned Litecoin, but for some reason long-term investors are hoarding LTC.

Price wise, Litecoin (LTC) has had a pretty rough year and currently the altcoin is down 51% over the past twelve months. The lack of GitHub activity and planned protocol upgrades have Litecoin co-founder Charlie Lee to admit 2019 saw a historic low in the number of developers working on Litecoin Core, the software behind network nodes.

The beginning of 2020 was no different and Charlie Lee asked for voluntary LTC miner donations to help boost development funding. Uncertainties regarding Litecoin’s future have caused investors to lose interest in the project and this is reflected both on-chain and in LTC’s trading metrics.

The interesting thing is, even though most would consider investors’ disinterest a negative driver, some have been quietly hoarding LTC.

Litecoin trading volume drops to a 2-year low

Volume is the single most relevant indicator of traders’ interest and Litecoin has been failing miserably in this area. Traded volume on major exchanges has been trending down for the past twelve months and has recently dropped to its lowest level in two years.

Litecoin 30-day average volume. Source: TradingView

Litecoin ranks third on Nomic transparent trading volume at $80 million per day. This is 50% above Bitcoin Cash (BCH), and EOS but the figure remains 45% below the previous eleven months when there was $146 million in daily volume on average.

A number of reasons could be behind the drastic change and it should be noted that even lower activity on exchanges does not necessarily translate to less blockchain usage, that has been the case.

On-chain metrics provide realistic insights into transfers, fees, active addresses, and many useful indicators that will be of interest to traders.

Adjusted transfer value

Transfer value is a leading on-chain indicator measuring user activity as it adds up all coins moved daily. CoinMetrics analysis provides more precise data by adjusting these figures to exclude mixers and transactions between the same entities.

Litecoin daily adjusted transfer sum 14-day average. Source: CoinMetrics

Daily adjusted transfers have been hovering around $20 million which is 83% below peak 2019 levels. The current level is comparable to Tezos (XTZ), a much newer and smaller cryptocurrency whose primary use-case has nothing to do with fast or cheap transactions.

A noticeable drop in transaction fees

Charlie Lee’s proposal included smaller block intervals than Bitcoin (BTC) and a simpler algorithm which removed the signature from the original data for a higher transaction output.

Such a move might have brought substantial interest in Litecoin (LTC) in the past but it is no longer valid as users became aware that 270 confirmations were required to match the computing power behind 3 Bitcoin mined blocks, according to Luke Childs’ How Many Confirmations analysis.

Litecoin mean fees per transaction 14-day average (USD). Source: Coinmetrics

LTC’s mean fees per transaction dropped to $0.011 which is the lowest level since October 2015. Although many reasons could be behind this, including 75% SegWit usage, the previous daily transfer value analysis points to weak demand from its users.

While Bitcoin’s median block size exceeds 1.2 megabytes most of the time, Litecoin averages below 0.2 megabytes despite both having similar capacity.

Low usage translates to small fees, reducing miners’ interest and resulting in a negative feedback loop as investors pay attention to the processing power behind each blockchain.

Reduced hashrate

Litecoin hashrate. Source: CoinWarz

The Litecoin hashrate decreased by 45% since its October 2019 halving, which usually raises concerns of 51% attacks. This unused processing power capability could theoretically be used to compete with honest miners.

Either way, there’s no positive read of fewer miners directing investments towards Litecoin. Unlike trading, mining activity is exclusively a long-term commitment as the payout usually exceeds a quarter and sometimes an entire year.

Investors are hoarding instead of dumping LTC

After so many negative indicators, one would expect holders’ activity to display weakness as both the price and network usage have been trending down for over a year.

One could also mention the lackluster performance of recent code advancements, including the MimbleWimble-technology privacy capability proposed in October 2019.

Litecoin unspent UTXO age. Source: Investificar.com.br

Oddly enough, the opposite holds, as 63.8% of Litecoin supply remains untouched in the past 12 months. In fact, this is the highest level ever.

According to the above Hodl Wave chart, also known as the UTXO age distribution chart, the percentage of coins that haven’t moved is increasing at an extraordinary pace.

The number of coins unmoved for 12 or more months at the beginning of 2020 stood at 56.7%. This additional 7% held by long term-investors is currently valued at $209 million which is enough to acquire 30% of the entire DASH supply.

There’s no way to assure the rationale behind such hoarding activity, but its impact over circulating supply is a net positive.

This activity doesn’t change the fact that the same amount of LTC will continue to be mined every day until next halving in 2023, nevertheless it provides a critical price support level.

Recently, investors have been speculating about a potential Litecoin integration with Cardano (ADA) and if true, this could be a bullish factor for Litecoin.

There is also the possibility of a crypto-market bull trend occurring and as investors begin to speak about an ‘alt season’ starting, Litecoin might face increased odds of large pumps as long-term investors tend to be less tempted to sell at the first price move.

Author: Marcel Pechman

Source: Cointelegraph: If Crypto Traders Abandoned Litecoin Why Are Investors Hoarding LTC?

Open interest on Bitcoin options contracts expiring next Friday amounts to $930 million, but what price action should be expected?

Much attention has been paid to the Bitcoin options and futures market and each week crypto media reports on new record open interest figures being achieved. As the date of another futures and options expiry approaches, traders are becoming anxious due to the fact that the Bitcoin (BTC) price has consistently failed to surpass the $10,000 mark.

To date, more than 100,000 Bitcoin options totaling $930 million are set to expire on June 26. This figure represents nearly 70% of Bitcoin’s entire open interest. On June 15, the Bitcoin price pulled back to $8,900, leading investors to question whether professional traders have turned bearish as the June 26 expiry date approaches.

Although open interest doesn’t allow one to predict a market trend, it is possible to gain more insight by analyzing additional data such as the put/call ratio. This indicator provides a clear picture of investors’ sentiment as call options are mostly used for bullish strategies.

Total BTC options open interest. Source: Skew

Data from Skew shows that open interest reached $1.3 billion — a 100% increase over the last two months. Currently, Panama-based derivatives exchange Deribit accounts for 77% of the options market, although regulated venues such as CME and LedgerX are consistently gaining relevance.

CME options are mostly underwater

June CME Bitcoin options open interest by strike. Source: CME

The June 26 expiry for the current CME contract consists almost entirely of call options, hence bullish positions. Seventy-five percent of such open interest is now sitting at the unlikely scenario of $11,000 and higher-level expiries.

This leaves $67 million worth of call options potentially impacting the market, which, when compared to the $300 million average daily volume traded on CME futures, is unlikely to have any meaningful impact. Also, investors should keep in mind each CME contract entitles 5 BTC.

Deribit options dominate, but are currently market neutral

June Deribit Bitcoin options open interest by strike. Source: Deribit

Deribit holds 50% of the 100,000 BTC options set to expire on June 26, and unlike CME, Deribit offers contracts starting from 0.10 BTC. Institutional investors are also able to access Deribit’s over-the-counter block trading solutions.

The above chart tells a slightly different story from CME, as strikes with a higher probability are more balanced between call and put options.

There is roughly 9.5K BTC open interest on both calls and puts. This amounts to a $180 million notional set to expire, although it does not indicate which side has a more substantial vested interest.

Futures markets sentiment is still slightly bullish

BTC futures markets provide an in-depth view of professional investors’ sentiment. Contracts that mature in three months should trade at a premium to the current spot levels in a situation known as contango. A steep contango indicates that sellers are demanding even more money in the future.

BTC futures 3-month contracts premium. Source: Skew

As shown above, the current 1.8% average premium for the September expiry sounds reasonable and is slightly bullish. The present scenario is the opposite of mid-May, when futures have faced backwardation as futures traded below spot price.

Bull market scenario

If Bitcoin somehow manages to trade above $11,000 at expiry, this would activate another 14,900 BTC in unaccounted option contracts. Every $100 above that level would bring call option buyers another $1.5 million in profits.

One should keep in mind that a call option would only benefit its buyer if trading above its strike level. Meanwhile, retail traders should avoid shorting such an important resistance for derivatives structures.

This $140 million in additional open interest at the $11,000 mark certainly presents a honeypot for bulls. But CME futures contract expiry happens simultaneously and currently holds a $313 million open interest.

Unlike option markets, there is no clear direction signaled by futures, as longs and shorts share exact opposite market exposure at every trade.

Currently, the question on the minds of pro traders is will the CME call option buyers prevail? Deribit options are set to expire at 8:00 am UTC on June 26 and the CME a few hours later at 3:00 pm UTC.

Author: Marcel Pechman

Source: Coin Telegraph: $930M in Bitcoin Options Expire Next Friday — Time to Worry?

Dennis Gartman began his trading career in the 1970s and over the years he amassed a ton of experience trading Forex, treasuries, stocks, commodities, and derivatives. Those familiar with Gartman will know that he wrote a very prestigious daily newsletter for 30 years, and it is held in high regard by institutional investors.

Known for his pragmatism and skepticism, Gartman crafted some of the most contrarian trading calls ever registered, often hitting the bullseye. Gartman eventually wrote down some “rules of trading,” and these have been revised and honed over time.

Most of Gartman’s rules work for any market, but some adjustments were necessary since cryptocurrencies are known for their uncanny volatility and startling lack of liquidity compared to established markets such as gold, oil and S&P futures.

Retail traders tend to make fundamental mistakes as conventional trading practices applied to cryptocurrency investing can sometimes produce unintended outcomes.

For example, it might seem natural to take profits once a trade hits your target and the shift to buying cryptocurrencies that have been lagging the market but it is not a strategy that has proven successful for many investors.

For this reason, we have reviewed Gartman top rules and adapted them for investors who trade cryptocurrencies.

1. Never add to a losing position

Sometimes it just makes sense to average down. After all, an investor could offset their losses faster as soon as prices recover. If an investor initially bought Ethereum (ETH) at $220 and it drops to $140, doubling down his position would result in an average price of $180.

This strategy would reduce break-even to a mere 29% gain instead of the original 57%. Gartman advises investors this is the worst strategy ever, and it’s not just inexperienced retail traders that fall for this one.

Losing positions should be terminated, not increased.

2. Be willing to switch sides, promptly

It doesn’t matter how bullish one is on a thesis. If the price of an asset continues to move down and reaches the stop loss, close the position. Do not immediately place another bid at a lower level. The only option that one should consider at this moment is selling even more.

The best procedure is to cut losses early and often.

3. A financial loss is terrible, but mental stress is even worse

Keeping a position that is damaging portfolio value is not a good thing, although the mental stress caused by it is even more harmful. After taking a loss, try to take a few days to focus on something else like your family and personal well being.

Every trader makes bad bets every once in a while, that’s part of the game. The important thing is to avoid emotional attachment to a position. There’s a vast difference between investing and trading.

It will be much harder for an XRP fanboy to trade out of their losing position since their extremely optimistic long term view will make it much harder to stomach the loss. The same happened with Bitcoin (BTC) maximalists who became paralyzed as the price dropped down from $10,000 to $4,500 in March 2020.

4. If the market is bullish, one can only be neutral or long

If a trade has reached the stop-loss, most likely, the investor hasn’t read the market correctly. Too many traders go bankrupt while trying to guess the bottom. A good strategy is to reevaluate market trends after every loss. One will only know if the price was high or low a couple of months after the fact. Don’t fight the trend.

Ethereum price chart Jan-Feb 2020. Source: TradingView

For example, the above chart shows a perfect trend divergence on a smaller time frame. Although some traders could have benefited by shorting the market, the more extended uptrend prevailed.

Such price movement is a perfect example of a bull market, where a trader should only be long or neutral. The opposite is valid during bear markets as traders should avoid building long positions, no matter on what timeframe. As traders used to say, “don’t try to catch a falling knife”. Wait for a clear trend change to start building a position.

5. Be patient with winning trades, quickly exit from losing trades

An investor can be very profitable even if they get only 30% of their picks right. The trick is having a tight stop loss of roughly 7% to 10%, while continuously adding position on winning trades.

That’s right. If a position keeps going up and the market trend is positive, buy more. Learn how to use stop orders both for limiting losses and adding positions during bull runs. Another interesting strategy is manually entering trailing stops.

Suppose one currently has a 10% gain, then locking profits for half the position with a 5% gain is a good idea. If the market continues to move up the following days, reaching 15% profit, move the stop order up to lock a 10% gain.

6. Respect powerful market trends

It’s tough to pinpoint the author of this phrase. Nevertheless, it hits the mark in every sense. Sometimes investors are 100% confident of a price move, but it merely does not happen.

Don’t try to argue with market sentiment. Do not expect everyone to align with your vision, no matter how “right” you are. Beware of confirmation bias, especially on social networks.

Investors tend to seek similar mindset traders and block opposing ones. The problem with this approach is it’s impossible to know the true motivations of crypto-Twitter analysts. What if the crypto influencer you cherish is expecting a pump right after his buying recommendation to get rid of his bags?

Respect the trend more than your gut or the opinions of others.

7. Respect large candles

If the market is slowly rising, and suddenly there’s a sizable negative candle it’s best to revise this position immediately. A 4% reversal could quickly grow to a 12% or 20% loss in a few hours or days.

On the other hand, after a prolonged bear market, a strong positive candle could be the trigger for a trend reversal.

Waiting for more discernible market structure and trend shift often presents better opportunities to make incremental purchases. Trends that last for weeks or even months usually offer a more substantial and faster reversal.

8. Markets trade in cycles, use them in your favor

When investors correctly interpret market trends, even a lousy trade can produce a positive result. This is precisely the time an investor should be raising the stakes and adding to existing open positions. On the other hand, when the price goes south, slow down and make each position smaller.

9. Be patient, markets can remain trendless for long periods

Keep in mind that short-term trends can differ from longer timeframe trends. What most inexperienced traders tend to miss is that more often than not, the market has no clear direction. When in doubt, sit tight. Wait for a trend confirmation and then start building a position.

10. Keep it simple, trade less, not more

It is far better to be the master of a few successful trading tools than to simply sit in the rafters observing price action through the use of dozens of indicators. The fewer variables, the easier it is to make a decision.

If the cryptocurrency you’ve been following jumped 15% and the following day another 20%, leave it. Even 300% bull runs present relevant drawdowns. Instead of FOMO’ing into a position, set bids at lower levels and wait.

Usually, the most profitable trades take days or weeks to happen therefore there is no need to rush. Monitoring the price action constantly will undoubtedly cause an investor to overtrade as hype and fear are the enemies of every trader regardless of their experience or skill level.

Anyone can draw a methodology. The hard part is sticking to it and following the plan. Work smarter, not harder.

Author: Marcel Pechman

Source: Coin Telegraph: 10 Tips to Keep Your Crypto Portfolio Profitable During a Crisis

Ad Blocker Detected!

Advertisements fund this website. Please disable your adblocking software or whitelist our website.
Thank You!