Litecoin (LTC) broke the $400 mark and made a new full-time $414 on Bitstamp on Monday.
The problem with buying Litecoin is that it becomes very expensive in a very short time. The world’s tenth largest cryptocurrency by market capitalization is worth 215% more than it was at the beginning of this year, rising from $124.42 to $413.90 new full time.
Its massive rise has outpaced traditional markets year-on-year, and many independent analysts are now predicting an increase of up to $500.
The amazing gains in the Litecoin market came on the heels of the broad bullish trend in the cryptocurrency market. The main competitors of the silver cryptocurrency, including Ether (ETH), XRP, Cardano (ADA) and many others, showed the best profits, and Dogecoin (DOGE), a joke cryptocurrency, increased by more than 17000% since the beginning of the year.
Jason Lau, CEO of OKCoin, a San Francisco-based cryptocurrency services company, highlighted the looming inverse correlation between Litecoin and Dogecoin, noting that the DOGE/USD exchange rate fell by 12% during the LTC/USD trading period. Rates increased by 12%.
Meanwhile, the Litecoin Dominance Index, an account that measures Litecoin’s strength relative to the rest of the cryptocurrency market, rose from 0.96% on Sunday to 1.11% on Monday. It also reflects an emotional shift in the Litecoin markets as the rise of other altcoins shows signs of slowing down.
Litecoin indicator recovers dominance in the middle of alternating trading. Source: LTC.D at TradingView.com
But Litecoin is now struggling with the same revaluation risk that drove Dogecoin’s price as high as 33% in the previous sessions. At the heart of this bearish analogy is a classic momentum oscillator called the Relative Strength Index (RSI), which has historically predicted potential price reversals in global markets. Now he tells the same story about Litecoin.
Is Litecoin Overbought?
The daily chart for LTC/USD shows the RSI at an inflection point around 79.02. This is 9 pips above the overbought threshold, which previously led to a price correction.
Litecoin price response to high RSI levels in recent history. Source: LTCUSD at TradingView.com
Usually a short-term trend reversal in the Litecoin market – when the RSI peaks – forces the price to test the 20-day exponential moving average (green wave) as intermediate support. Meanwhile, the extended sell-off is asking traders to look at the 50-day simple moving average (blue wave) which is the primary target for the downside.
Therefore, a possible pullback after the recent sharp move risks pushing LTC/USD to $252-310 based on the estimates of the current moving average.
Besides the technical aspects, macroeconomic stimuli continue to support the cryptocurrency markets as a whole.
A study by Charles Schwab found that more than 51% of Generation Z investors are more likely to invest in cryptocurrencies than traditional stocks. Their interests in the emerging digital asset sector have risen amid concerns about inflation and a depreciating dollar, especially as central banks around the world are responding to the coronavirus pandemic by easing monetary policy.
The US Federal Reserve, for example, has made it clear that it will continue its $120 billion monthly asset purchase program, while keeping the base rate around zero until at least 2023.
Meanwhile, according to data collected by Cryptowatch, the correlation between Bitcoin (BTC) and Litecoin is around 0.40.