Market Anomalies = Opportunity: The Biggest Lie Sold to BTC Investors Was Endless Growth

After reflecting on Jim Simons’ passing, I was reminded of how I’ve always approached speculation and investing in the markets. Jim Simons is known for saying, “The advantage we have is that we can find patterns, we can find anomalies that no one else can.” This quote perfectly encapsulates my belief in that spotting market anomalies is the only way you can beat average market returns.

In crypto today, I’ve never seen a larger anomaly than the narrative around Bitcoin (BTC) that’s proliferated over the last seven years. People have been sold a lie that BTC is universal money for everybody. The reality is that it isn’t and I’ll explain why that is and then provide what I believe to be the most overlooked opportunity in the crypto space in which there is very little time remaining to position.

Fundamental Analysis Summary

1. Narratives and Market Sentiment:

• Market narratives are crucial in driving extreme valuations especially with respect to the cryptocurrency space. Popularity can significantly affect an asset’s price and generally popularity produces even more popularity which leads to what we call reflexivity (positive feedback loops that send prices vertical).
• Anomalies between market perceptions and reality present significant opportunities. The larger the divergence, the greater the potential for profit.
• The biggest misconception in the crypto market is the notion of Bitcoin (BTC) as universal money. High BTC transaction fees reduce its demand as a transactional currency.

So, let’s first look at this from a fundamental perspective:

1. The BTC Scaling Debate:

There are two sides to this debate; one side which thinks increasing block sizes can scale the chain, and the other which believes that introducing credit layers will scale BTC. I’m in the third camp which didn’t exist until I created it, but this understanding is starting to grow as I’ve seen more influential traders and investors begin to regurgitate my thesis. It is inevitable that new chains will emerge as the demand for BTC increases to the level that certain transactions become priced out. Why? It costs nothing to create a new chain. Bitcoin is open-source code that can be copied and recreated, but this doens’t mean we’ll get infinite chains. It is extremely hard to establish network effects because the market doesn’t need a new chain until one becomes prohibitively expensive.

To summarize why BTC is not scalable:

• Increasing BTC block sizes decreases decentralization and security.
• Credit layers for BTC don’t solve the fee issue as all transactions eventually settle on the base chain, maintaining high fees.

We have evidence of substitution actually happening since BTC blocks first became full and fees started to increase.

• Historical substitution for BTC during high fee periods has occurred mostly with Litecoin (LTC).

This is a chart of LTC and BTC transactions.

If you check the corresponding BTC fee level, you’d notice that it directly correlates to an increase in LTC transactions. This trend has always existed between BTC and LTC BTC blocks became full.

• The market undervalues LTC’s role as an alternative transactional network and believes it’s a dead chain as price has consolidated for 7 years. This is the anomly. Extremely negative sentiment while network is showing organic growth.

Sentiment Analysis

1. Market Sentiment:

• Current sentiment around LTC is extremely bearish due to its prolonged consolidation period and the narrative that BTC scales.
• Negative sentiment often precedes major price reversals, especially when technical indicators are bullish. My thinking is that the more extreme the bearish sentiment relative to the actual future expected utility of the chain w/in the context of this market cycle, the more extreme the price breakout.
• Negative sentiment can also be seen in the indicators I’ll present further down (e.g. OBV trends suggesting accumulation and Cumulative Volume Delta showing market selling is being absorbed by larger passive buyers).

Technical Analysis Summary

1. High Time Frame Symmetrical Triangle:

LTC has been consolidating in a symmetrical triangle structure since 2017. These are typically continuation patterns and so in this context we’d expect a breakout to the upside (60+% w/ just this chart pattern alone)

Price Target for this is $1,000+

1. On-Balance Volume (OBV):

• LTC’s OBV is significantly rising despite flat price action, indicating strong accumulation.

• You can clearly see that on the higher time frames (this is the monthly but the weekly and daily are also showing the same) that On-Balance Volume is trending higher while price is moving sideways. This is bullish divergen often indicative of accumulation.

I’ve found a similar setup in terms of price and the indicator in binance coin which I’ll show below:

• Comparisons with BNB’s historical OBV and price movement suggest LTC is set for a similar or stronger breakout.

BNB’s OBV trended higher faster than price, which then led to an explosive 3,000% breakout. LTC’s OBV is more bullish though because price is going sideways (likely due to extreme negative sentiment and misunderstanding because of BTC’s strong narrative) while OBV is trending similarly to the chart above for BNB.

Other similar OBV setups from crypto’s past:

1. Ethereum (ETH):

• ETH’s OBV showed strong accumulation in 2020 before breaking ATH in price. LTC’s OBV increase appears comparable in magnitude and duration.

2. Ripple (XRP):

• XRP had a significant OBV increase during consolidation phases. LTC’s current OBV is higher in magnitude, suggesting stronger accumulation.

3. Cardano (ADA):

• ADA’s OBV increase during 2020–2021 was significant, but LTC’s OBV levels appear more pronounced in relative terms.

4. Polkadot (DOT):

• DOT’s OBV showed strong accumulation before price increases, similar to LTC’s current setup but with less prolonged accumulation.

5. Chainlink (LINK):

• LINK’s OBV setup showed strong accumulation before price rises, but LTC’s current OBV trend is stronger and more sustained.

Given LTC’s higher OBV strength and longer accumulation, it makes sense to assign a higher OBV strength multiplier. Let’s use conservative multiplier of 1.25x for the stronger OBV compared to the average of other assets and an additional 1.25x for the longer accumulation period.

1. Average Multi-Month Percentage Gains for these particular setups:

• ETH: 1,015%
• XRP: (45,900 + 540) / 2 = 23,220%
• ADA: 14,700%
• DOT: 1,479%
• LINK: 926%
• Overall Average: (1,015 + 23,220 + 14,700 + 1,479 + 926) / 5 ≈ 8,268%

Note that XRP and ADA were relatively tiny assets before they made their moves which skews the percentages higher, but also need to note that it seems likely the amount of capital coming into this space is going to be far larger than in previous crypto market cycles.

Because the largest pools of capital are now hooked into the cryptocurrency market via BTC ETF’s, this will inevitably lead to front-running the expected ETF flows into other coins. I’ve stated before how I believe LTC to be one of the few in line receive one, and so I think this narrative will present itself as price starts moving up.

The ’21 cycle was more tempered than the ’17 cycle, but I think it’s more likely that we get a parabolic blow-off top across most major asset classes that leads to far more euphoria than we saw in 2017. I believe LTC will catch attention at nearly the exact moment that everyone starts really paying attention to these markets once BTC breaks all time highs leading to relative strength amongst it’s peers. Because of the long drawn out accumulation period we have very few coins available for sale, and so the likelihood of reflexivity (the market finding narratives to support higher prices) seems likely.

In other words, what I’m saying is that on top of the accumulation multiplier suggesting higher price gains relative to other cryptocurrencies that had similar setups, we likely will see a higher % of new entrants than we saw in 2017 and 2021. And so we have a multiplier on top of a multiplier.

All LTC needs is enough of a demand catalyst to push price above key technical levels.

Cumulative Volume Delta, Open Interest, and Funding Rate Analysis:

LTC Open Interest is very low relative to the last year. I think many trader’s were liquidated and washed out during our last liquidation event and are scared or unable to return. This is bullish.

CVD is very negative meaning there is a large amount of market selling, but price is forming higher lows. This is bullish divergence and suggests accumulation as market sellers are selling into large passive buyers who are absorbing the selling. Also, I believe there are a lot of people capitulating and chasing meme coins or jumping into BTC believing that LTC will never rally again.

LuxAlgo Oscillator:

This is a combination of multiple indicators, but has a 100% success rate in calling the LTC/BTC bottom thus far. The last time it fired was in 2017 before the major rally.

LTC against other major cryptocurrencies: Bottom Signals Firing

Bottoms are extremely hard to call in multi-year downtrends but I believe we are very close because of the confluence of multiple indicators.

Relative Strength Index (RSI):

• Bullish divergence on LTC/BTC and LTC/ETH pairs along with corresponding 9 TD Sequential perfect buy setups indicate that entering LTC is at extremely low risk relative to the potential upside.

LTC/BTC shows monthly and weekly bullish RSI divergence and is on a TD-9 Buy set-up.

LTC/ETH looks even more bullish but is showing the same TD-9 Buy Set-up and RSI divergence.

Potential narrative change: If the Ethereum ETF is denied (possibly being labeled a security) we would likely see speculation out of ETH and into the next coin that could potentially have an ETF approved. It’s very likely an LTC ETF would be approved immediately if there was enough investor demand for a large ETF provider to supply one to the market. LTC is nearly identical in code to BTC and BTC has already had an ETF, so there are no grounds for the SEC to deny an LTC ETF.

1. Historical Fractal Analysis:

• Historical fractal analysis indicates that LTC is following a pattern similar to it’s previous explosive move in March 2017.

The blue price chart is the 2014–2017 price action scaled to fit the longer consolidation LTC has been in 2017–2024. I usually don’t recommend using fractal’s as predictive technically, but it’s hard to ignore something that has been tracking so similarly.

• This is the fractal zoomed in. Suggests that the beginning of the move is imminent.
• Applying similar percentage moves from other coins to LTC’s current setup suggests substantial price targets.

Larger Macro-Economic Analaysis (Cross-market analysis):

It’s been my thesis since late 2022 that all risk assets would rally to new All-Time Highs. Why? Well, it’s multivariable but the largest contributing factor I saw was divergence between investor expectations of restrictive monetary policy versus the reality that it’s not restrictive at all. An anomaly.

Under this assumption, it was my belief that because the cryptocurrency market is the smallest relative to the all other asset classes it would yield the highest percentage returns. I’ve believed this since 2017 and have been nearly 100% allocated to crypto during that last 2 bull market trends, and I thought that this current market cycle would be no different.

All equity indexes have recently made new all time highs.

Bitcoin tends to follow stocks lag these indexes, and since we just had a FTD in the NASDAQ, it gives me higher conviction that BTC will soon break towards $100k.

High volume breakout of ATH’s

BTC Dominance:

Bitcoin dominance tends to rise until BTC convincingly breaks through ATH’s, and then alts tend to take-over. A TD-9 sell just fired on the monthly timeframe. I think we’re within weeks to months from this topping in BTC Dominance if BTC can start it’s next leg up towards that $100k level. As it does this, I think we may be in a similar setup to early 2017 where LTC started to breakout from BTC as BTC rallied.

In other words, I think there’s a good chance that LTC/BTC may have bottomed before BTC dominance has topped and therefore would position in LTC over trying to ride one potential final leg higher in BTC/USD. Regardless of this is correct or not, it would be very unwise to be selling altcoins for bitcoin at these levels. Alt-season should last 3–6 months based on prior cycles time lengths.

Combined Probability Analysis

Estimated Probability of a Violent LTC Breakout

• Fundamental Analysis Contribution: 30%
• The reason why I think this asset is a low risk buy with the largest upside potential in the crypto market is because it has historical network data that we can rely on that prove it’s being adopted while sentiment is arguably more negative than any other chain in the crypto market. This is the largest divergence between what the market thinks will happen versus what I can actually see with my own eyes as to what is happening. BTC doesn’t scale so substitution is inevitable. We also have multiple strong reliable technical indicators that are firing giving us significant confluence.
• Strong narrative potential (Silver to Bitcoin’s Gold leading to speculation that it should be price at .25ltc/btc as LTC supply is 4 times higher than BTC) and historical role as a BTC substitute.
• Technical Analysis Contribution: 30%
• Robust technical indicators all pointing to significant upside potential.
• Sentiment Analysis Contribution: 40%
• Extreme bearish sentiment has high potential to reverse, triggering a strong upward move.

Combined Probability Estimate: Given the robust alignment of fundamental and technical indicators, combined with the potential for a sentiment-driven breakout, I estimate the probability of a violent LTC breakout before June 31st to be very likely.

Sentiment Analysis and Reflexivity

Importance of Sentiment

• Heavily Weighted Factor: In my analysis, sentiment carries significant weight due to its ability to impact crypto price movements so significantly. Unlike traditional markets, crypto markets are highly sensitive to shifts in sentiment, which can lead to rapid and dramatic price changes. Why?

Uncapped Price Speculation

• Market for Money: The potential market for digital currencies like Litecoin is vast, as it encompasses the entire global monetary system. This means the upside for price speculation is virtually uncapped. So people can paint high in the sky price targets, and if enough people are unwilling to sell because they believe price will hit that target, you start to get self fulfilling prophecies.
• Reflexivity in Price Action: The concept of reflexivity, where market participants’ expectations can drive prices in a self-fulfilling manner, is particularly pronounced in crypto. Shifts in sentiment lead to buying, which drives prices up, further enhancing sentiment and continuing the cycle. It’s the relative shift from extremely negative to postiive that leads me to the conclusion that this move will be violent.

Conclusion

The misconception about Bitcoin being universal money overlooks critical scalability issues. As BTC fees rise, users seek alternatives, leading to the growth of other chains and technologies. Recognizing these market anomalies presents significant investment opportunities if you can time them right. The current sentiment around Litecoin is extremely bearish. It has gone sideways in price for the past seven years, leading many to label it a “dead chain.” But, underlying LTC network activity has been consistently growing during that timeframe. This leads to a strong potential for reversal as eventually increasing organic network activity will push up price beyond key technical levels eventually leading to a dramatic shift in sentiment and repricing of this asset as market perception of this asset more aligns with reality. Multiple highly reliable indicators are all firing in tandem giving us high conviction that this should breakout imminently and shock the crypto markets.