Litecoin price at risk of a 30% drop if key LTC futures historical trend repeats

With less than two weeks until Litecoin’s halving, when the miner’s block subsidy will be cut in half, traders are questioning whether the additional scarcity effect will be enough to sustain the LTC price above $90. 

Litecoin’s (LTC) price has declined by 19% in the last 18 days, but it has shown a positive 31% performance this year. Notably, most gains occurred between June 29 and July 2, with a 34% rally pushing the price to a 14-month high of $115.

However, there’s an alarming statistic coming from the derivatives market that indicates a sharp correction is likely underway.

Historical data doesn’t favor Litecoin bulls

Each of the previous three instances where Litecoin futures open interest dropped below $500 million caused price drops of 38% or higher, which potentially matches the current scenario.

Litecoin futures’ aggregate open interest in dollars from June 29 ($300 million) to July 2 ($615 million) shows there was a significant surge, indicating increased demand for leveraged futures contracts.

On July 2, Litecoin’s price reached a 14-month high but subsequently declined 20% to $92. However, the concerning aspect is Litecoin’s open interest remaining above the $500 million mark. This suggests buyers added margin to avoid liquidation, yet the risk of a sharp correction persists.

Higher active contracts (open interest) are generally positive, enabling investors who require a specific market size to participate. Even if it’s not necessarily bullish for price momentum, it allows for larger price swings 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

Litecoin’s open interest dropping below the $500 million threshold seems a reliable indicator of investors’ diminished interest, and the three latest occurrences confirm the thesis, as its price faced drastic corrections in each instance.

On Nov. 10, 2021, Litecoin’s open interest surpassed $500 million, coinciding with a six-month price high of $289. Interestingly, Litecoin’s price crashed 48% in the 24 days after open interest dropped below $500 million on Nov. 14, 2021.

Previously,…