2 counterarguments for CNBC’s Brian Kelly who sees a $19K Bitcoin top

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:

“I’m still a Bitcoin bull. In the long run, I’m going to be a bull for the next decade. But, if I take off the long-term investor hat and put on my short-term hedge fund trader hat, there are a couple of things out there that I’m starting to see are signs of a top.”

Altcoin pump is shaking things up

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:

“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 that are under $5, start to go up 30% to 40% a day. Those are the types of things that happen at short to medium-term tops.”

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.

Overvalued Bitcoin address growth

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:

“When I look at the address growth, the market is pricing in about 25% address growth over the next 30 days. Whenever you get that big of an address growth implied, that is a caution sign.

Futures funding rates are high

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:

“The last one is that we are starting to see retail come into this market and you’re starting to see the interest rates that it charges on margin going much higher.”

Counterarguments against a local top at $19,000

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.

98% of $BTC addresses in profit–everybody happy! pic.twitter.com/pGpqqBh7uG

— Elias Simos (@eliasimos) November 20, 2020

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.