With less than two weeks until Litecoin’s halving, traders are questioning if the additional scarcity effect will be enough to sustain the LTC price above $90, as the crypto block subsidy will be cut in half. Despite the 19% decline in the last 18 days, Litecoin (LTC) has shown a positive 31% performance this year, with the 34% rally pushing the price to a 14-month high of $115.
However, the latest on crypto from the derivatives market indicates a sharp correction is likely underway.
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Historical data doesn’t favor Litecoin bulls
Data for the past three times when Litecoin futures open interest dropped below $500 million show that the price decreased by 38% or more, which is similar to the present situation.
From June 29 ($300 million) to July 2 ($615 million), the aggregate open interest in dollars for Litecoin futures increased significantly, indicating an augmented demand for leveraged contracts.
On July 2, Litecoin’s price hit a 14-month peak but then decreased by 20% to $92. The concerning factor is that the open interest for Litecoin remains above the $500 million mark. This implies that buyers added margin to prevent liquidation, yet the danger of a sharp correction persists.
More active contracts (open interest) are usually positive, allowing investors who need a certain market size to be involved. Although it may not be necessarily bullish for price momentum, it allows for larger price fluctuations due to leverage and potential liquidations when a trader’s position is closed due to a lack of margin.
A look back at the November 2021 crash and open interest
The three most recent occasions when Litecoin’s open interest dropped below the $500 million mark serve as a clear demonstration of investors’ waning enthusiasm, with the price taking a nosedive each time.
On Nov. 10, 2021, the open interest for Litecoin rose above $500 million, coinciding with a six-month peak of $289. However, just four days later, when the open interest dropped back below $500 million, the price of Litecoin dropped by 48% in the following 24 days.
Previous to this, Litecoin’s open interest had surged but was unable to break the $500 million barrier, despite the price climbing by 40% to $232 in early September.
Two more occasions of this same pattern occurred in 2021, between February and June, with the open interest dropping below the $500 million threshold and the price subsequently taking a dive.
Similar events in February 2021 and May 2021
On Feb. 8, 2021, Litecoin’s open interest surged above $500 million, marking a 64% price gain, which peaked at $247 on Feb. 20, 2021. However, on the same day, open interest dropped below $500 million, leading to a 38% price decline in the next eight days. Notably, the $200 psychological price support held for five days before the Litecoin price declined to $142.
Again, on May 9, 2021, Litecoin’s open interest fell below $500 million after 49 days. It reached an all-time high of $409 during that period, followed by a 71% correction in just 13 days, settling at $118.
Though causation cannot be drawn from events of over 19 months ago, it’s essential to keep an eye on Litecoin’s open interest. If it declines from the current $500 million level, history suggests a potential 30% drawdown from $94 to $62. To stay up-to-date on the latest crypto news, it’s important to keep track of the latest Voyager Crypto, Crypto.com, and other high street crypto trends.
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