CNBC Fast Money trader Brian Kelly sees three possible signs of a price freeze like Bitcoin (BTC) hits $ 19,000. Fundamental as well as technical factors suggest that a downturn could be imminent if the rally becomes overloaded.
Kelly cited three reasons why a Bitcoin pullback could occur in the short term. The reasons were the pump of altcoins, overpriced address growth and high funding rates. On November 25, he has said on CNBC:
“I am still a Bitcoin bull. In the long run, I will be a bull for the next ten years. But when I take off the hat of the long-term investor and put on my hat for the trader in a short-term hedge fund, there are some things that I am starting to see as signs of a top. “
Altcoin pump is shaking things up
As Cointelegraph reported, alternative cryptocurrencies (altcoins) such as XRP and Stellar (XLM) have risen sharply in recent months. Their uptrends were reminiscent of the altcoin mania of January 2018, when BTC began to pull back and altcoins rallied.
During the latest market spike, Bitcoin corrected sharply as altcoins recovered, then the entire market crashed in the months that followed.
Considering that major altcoins are up 50% to 100% in recent weeks, Kelly is cautious about the rise of the altcoin market. He said:
More than any other asset class in the world, Bitcoin is subject to FOMO more than anything else. We are starting to see speculative coins, coins under $ 5, which are up 30% to 40% per day. Those are the things that happen at tops in the short to medium term. “
The rally in altcoins has caused major problems in the cryptocurrency market. For example, on Nov. 24, the price of XRP rose nearly 50% and peaked above $ 0.90 on Coinbase. Demand rose to a point where Coinbase went down temporarily, coinciding with a decline in Bitcoin and Ether (ETH) Prices.
Overvalued Bitcoin Address Growth
Kelly has been continuously using Bitcoin’s address growth metric as a way to value BTC since 2017. When the address growth doesn’t match the price of BTC, it could mean that BTC is too expensive.
Currently, Kelly said the market is targeting 25% address growth for Bitcoin in the coming month. According to Kelly, this is a worrying sign that could mean the market is overvaluing BTC in the near term. He said:
“When I look at address growth, the market is pricing about 25% address growth in the next 30 days. Whenever you imply such a large address growth, that’s a warning sign.
Futures funding rates are high
Finally, Kelly pointed out the rising funding rates of perpetual Bitcoin futures contracts on major exchanges.
When the funding rate increases, it means that the market is dominated by buyers and long contract holders, increasing the likelihood of a long-term squeeze or pullback. He wrote:
“The last one is we’re starting to see retail entering this market and you’re starting to see the interest rates it charges on the margin getting much higher.”
Counter arguments against a local top of $ 19,000
However, in the past two days, the BTC futures funding rate stabilized after the price of Bitcoin fell from $ 19,400 to $ 18,700.
But while the funding rate is still higher than normal, it hovers around 0.03%. In comparison, the funding rate has fluctuated at 0.18% on the major stock exchanges at the height of the recent rally.
– Elias Simos (@eliasimos) November 20, 2020
The market is becoming less overheated, while many addresses are comfortably profitable. The combination of the two allows the rally to be continued in the short term.
Data from Google Trends also shows that the ongoing rally has generally lower overall interest than three years ago, suggesting the rally is in its infancy. The popularity of the keyword “Bitcoin” on Google Search is only 20% of the interest seen at the end of 2017.