CNBC Fast Money trader Brian Kelly sees three potential signs of a price top as Bitcoin (BTC) hits $19,000. Both fundamental and technical factors suggest a pullback could be imminent as the rally becomes overextended.
Kelly named three reasons why a short-term Bitcoin pullback might occur. The reasons were the pump of altcoins, overpriced address growth and high funding rates. On Nov. 25, he said on CNBC:
As Cointelegraph reported, alternative cryptocurrencies, or altcoins, such as XRP and Stellar (XLM) have surged steeply in recent months. Their uptrends were reminiscent of the January 2018 altcoin mania, when BTC started to pull back and altcoins rallied.
During the last market peak, Bitcoin corrected strongly as altcoins rallied, and then the entire market crashed in tandem in the months that followed.
Considering that major altcoins have surged 50% to 100% in recent weeks, Kelly is cautious about the altcoin market’s upsurge. He said:
The rally in altcoins has been causing major problems in the cryptocurrency market. For instance, on Nov. 24, the price of XRP rallied nearly 50%, spiking above $0.90 on Coinbase. The demand increased to a point where it caused Coinbase to temporarily go down, which coincided with a drop in Bitcoin and Ether (ETH) prices.
Kelly has continuously used the address growth metric of Bitcoin as a way to value BTC since 2017. When the address growth does not match the price of BTC, it could signify that BTC is overpriced.
Currently, Kelly said that the market is pricing in a 25% address growth for Bitcoin in the next month. According to Kelly, this is a concerning sign that could mean that the market is overvaluing BTC in the near term. He said:
Lastly, Kelly pinpointed the rising funding rates of Bitcoin perpetual futures contracts across major exchanges.
When the funding rate increases, it means that the market is dominated by buyers and long-contract holders, increasing the probability of a long squeeze or a pullback. He noted:
In the past two days, however, the BTC futures funding rate stabilized after Bitcoin’s price dipped from $19,400 to $18,700.
But while the funding rate is still higher than usual, it is hovering at around 0.03%. For comparison, the funding rate hovered at 0.18% on major exchanges at the peak of the recent rally.
The market is getting less overheated while many addresses are comfortably in profit. The combination of the two could allow the rally to continue in the near term.
Google Trends data also shows that the ongoing rally has lower overall mainstream interest than three years ago, which suggests that the rally is only in its early stages. The popularity of the keyword “Bitcoin” on Google Search is only 20% of the interest seen in late 2017.