Two things may result in a Bitcoin blow-off top, says on-chain analyst

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David Puell, an on-chain analyst and inventor of the Puell Multiple, believes two things could cause Bitcoin (BTC) to temporarily spike this cycle.

The analyst pointed out that the U.S. government may tax unrealized gains and the possible approval of an exchange-traded bitcoin fund (ETF) could cause BTC’s momentum to slow.

Why should an ETF negatively impact the short-term Bitcoin price cycle?

The potential impact of the U.S. government imposing taxes on unrealized gains on the price of Bitcoin is obvious.

At the end of each tax cycle, Bitcoin saw heightened selling pressures that drove its momentum down.

However, the prospect of a Bitcoin ETF, which may have a negative impact on the price of Bitcoin, is a relatively new concept.

Puell explains that the arbitrage game of taking advantage of the Grayscale Bitcoin Trust’s premium was a major catalyst for BTC’s recent rally.

Grayscale Investment BTC Holdings. Source: Bybt.com

Approving an ETF could slow the flow of capital into the grayscale bitcoin trust, which could then supposedly lower demand for bitcoin on paper. Puell said:

“BTC: IMO, there are two plausible pieces of news that would signal a cyclical lead for Bitcoin … 1. Unrealized US Tax Gains: Selling pressure on an annualized schedule. 2. ETF approval, incentives for GBTC to trade at discounts, and education on the major arb game that drives this bull. “

It is unlikely that these two events will occur in the near future. Puell emphasized that in this case they would be basically bearish for Bitcoin. He explained:

“Important note: They don’t say they will happen tomorrow, but they are basically bearish when they should occur. Bitcoin would have to overcome these obstacles in order to continue on its long-term path. I pay attention. “

Traders are also cautious about BTC unless BTC breaks out of $ 35,000

Even so, Bitcoin has a good chance of breaking out of the USD 35,000 resistance level in the short term. It rose to $ 34,880 on Jan 25 and showed strong momentum on an overnight rally.

However, Bitcoin struggled to break out of the critical $ 35,000 level and drop below $ 32,000 on January 26th.

Loma, a pseudonymous cryptocurrency trader, said the failure to exceed $ 35,000 could make altcoins more convincing, especially as BTC momentum fades. He noticed:

“Above $ 35,000, or if BTC types between $ 26 and $ 27,000, that Avi changes and we get endless bullish propaganda. Until then, however, things look pretty crappy unless you scalp. The craving for ALTs towards the end of the week with a short of BTC as a hedge is still the game. “

As Cointelegraph reported, Bitcoin’s weakness for the past two weeks has caused the ETH / BTC pair to break out. Large-cap altcoins, including Ether and DeFi tokens, have done particularly well against BTC so far this year.

Bitcoin and Ether YTD performance. Source: Digital Assets Data

If Bitcoin continues to consolidate below $ 35,000 for the time being, altcoins are in a good position to appreciate especially against their respective BTC pairs in the first quarter of 2021.