Understanding and accurately valuing Litecoin is hard, being able to weigh up real market demand and usage that isn’t just speculative is far from easy, which is why it can be useful at times to fundamentally look into the network and filter out the noise.
Previously I’ve touched upon the amount of transactions being sent across the network, noting how it had been flatlining at a steady ~20,000 txs daily, this was despite the erratic movements in market price as speculators placed their bets. All the way from $180 to $23 over two years this 20,000 has remained remarkably consistent showing what would appear to be a fundamental level of network usage. Granted it’s not clear who or what is behind this usage without access to specialised data tools and quality tests this transaction figure can be spammed higher at a low cost.
That being said, when comparing market price to transactions, scaling linearly (min-max values) a familiar pattern emerges. The transaction value appears to have acted as a floor of support for market prices on multiple occasions at around $35, which was also remarkably close to the 2018 low of $23 considering. Those prices didn’t stay around for long, quickly recovering to, you guessed it ~$34 for a couple of months before rising higher.
We may not like it but this appears to be a somewhat healthy indicator for the valuation of the network. But don’t despair as there appears to be growth and correlation between the two metrics, something we have not seen since the beginning of 2017 according to data provided by bitinfocharts. Unlike the halving run up in price this appears to be a healthy correlation with both moving in lockstep for the last 2 months.
Looking back at 2017 this correlation continued with a high level of accuracy all the way to the peak of the market. This ratio is roughly 600 Txs : 1 USD with an acceptable error drop off of around +-30%. Yes, that is a significant value but in relation to volatility this would put the current Litecoin upper and lower bounds at $61 and $33 respectively. With a little coding this could be turned into a Bollinger Band type indicator.
Anything outside these bounds and price can be considered overvalued or oversold fundamentally, although when it escapes to the upside it really runs away so this would be mostly a buying zone indicator, where price has always revisited. If we continue to see this steady increase in transaction usage on the network we should likewise expect to see price follow.