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.
The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You should conduct your own research when making a decision.