With less than two weeks to go before Litecoin’s halving, when the block subsidy for miners will be halved, traders are questioning whether the impact of the additional halving will be enough to keep the LTC price above $90.

Litecoin (LTC) has lost 19% in price over the past 18 days, but has shown a positive performance of 31% this year. Notably, the most gains occurred between June 29 and July 2, with a 34% rally to take the price to a 14-month high of $115.

However, there is a worrying data coming from the derivatives market which suggests that a sharp correction is likely.

Historical Data Does Not Favor Litecoin Bulls

In each of the last three instances where the open interest of Litecoin futures dropped below $500 million, prices declined by 38% or more, potentially matching the current scenario.

The total open interest in USD Litecoin futures from June 29 ($300M) to July 2 ($615M) shows a significant jump, indicating increased demand for leveraged futures contracts.

On July 2, the price of Litecoin reached a 14-month high, but later fell by 20% to $92. However, the worrisome aspect is that Litecoin’s open interest remains above the $500 million mark. This suggests that buyers have added margin to avoid liquidation, yet the risk of a sharp downside remains.

High active contracts (open interest) are generally positive, enabling investors who require a specific market size to participate. Even though this is not necessary for price movement, it allows for larger price fluctuations due to leverage and possible liquidation if a trader’s position is closed due to lack of margin.

November 2021 Decline and Open Interest at a glance

Litecoin’s fall in open interest below the $500 million threshold seems to be a reliable indicator of low investor interest, and the three latest events seem to confirm the thesis, as its price suffered massive corrections in each instance.

On November 10, 2021, Litecoin’s open interest exceeded $500 million, coinciding with a six-month high of $289. Interestingly, on November 14, 2021, Litecoin price declined by 48% in 24 days after the open interest fell below $500 million.

Prior to this, Litecoin’s open interest had risen but failed to break the $500 million mark, and even a 40% price increase to $232 in early September could not break that barrier.

Confirming the relevance of open interest, 2021 saw two other events between February and June, which showed significant declines after futures open interest broke the $500 million threshold.

Similar events in February 2021 and May 2021

On February 8, 2021, Litecoin’s open interest surged above $500 million, leading to a 64% price increase, reaching $247 on February 20, 2021. However, on the same day, open interest fell below $500 million, causing the price to decline by 38% over the next eight days. Notably, the psychological price support at $200 held for five days before Litecoin price dropped to $142.

Then, on May 9, 2021, Litecoin’s open interest dropped below $500 million after 49 days. During that period it reached an all-time high of $409, followed by a 71% correction in just 13 days to close at $118.

Although the reason cannot be deduced from the events of 19 months ago, it is necessary to keep an eye on the open interest of Litecoin. If it breaks down from the current $500 million level, history suggests a potential 30% drop from $94 to $62.