Buying Bitcoin at significantly higher prices than just a few months ago can be daunting. However, with the right strategies, you can buy Bitcoin on dips with a favorable risk-reward ratio while riding the bull market.
Confirmation of bull market conditions
Before accumulating, make sure you are still in a bull market. The MVRV Z-Score helps identify overheated or undervalued conditions by analyzing the deviation between market value and realized value.
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Avoid buying when the Z-Score reaches high values, such as above 6.00, which would indicate that the market is overextended and approaching a potential bearish reversal. If the Z-score is lower than this, the dips likely represent opportunities, especially if other indicators align. Don’t accumulate aggressively during a bear market. Instead, focus on finding the macro bottom.
Short-term holders
This chart reflects the average cost basis of new market participants, offering a glimpse into the activity of short-term incumbents. Historically, during bull cycles, any time the price bounces off the short-term holder’s realized price line (or drops slightly below), it has presented excellent accumulation opportunities.
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Measure market sentiment
Although simple, the Fear and Greed Index provides valuable insights into market emotions. Scores of 25 or lower often indicate extreme fear, which often accompanies irrational sell-offs. These moments offer favorable risk-return conditions.
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Identifying a market overreaction
Funding rates reflect trader sentiment in the futures markets. Negative financing during bull cycles is especially significant. Exchanges like Bybit, which attract retail investors, show that negative rates are a strong signal of accumulation during dips.
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When traders use BTC as collateral, negative rates often indicate excellent buying opportunities, as those who short Bitcoin tend to be more cautious and deliberate. This is why I prefer to focus on coin-denominated funding rates rather than regular USD rates.
Active address sentiment indicator
This tool measures the divergence between the price of Bitcoin and network activity, when we see a divergence in the Active Address Sentiment Indicator (AASI) it indicates that there is excessively bearish price action given the strength of network usage below.
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My preferred method of use is to wait until the 28-day percentage change in price drops below the lower standard deviation band of the 28-day percentage change in active addresses and back above. This buy signal confirms the strength of the network and often signals a reversal.
Conclusion
Accumulating during bull market dips involves managing risk rather than chasing bottoms. Buying slightly higher but oversold reduces the likelihood of experiencing a 20%-40% drop compared to buying during a strong rally.
Confirm that we are still in a bull market and that dips are for buying, then identify favorable buying zones using multiple confluence metrics, such as short-term holder realized price, Fear & Greed Index, financing rates and AASI. Prioritize small incremental purchases (dollar-cost averaging) over “all-in” and focus on risk/reward ratios rather than absolute dollar amounts.
By combining these strategies, you can make informed decisions and take advantage of the unique opportunities presented by bull market dips. For a more in-depth look at this topic, check out a recent YouTube video here: How to Accumulate Bitcoin Bull Market Dips
For more detailed Bitcoin analysis and access to advanced features like real-time charts, custom indicator alerts, and in-depth industry reports, check out Bitcoin Magazine Pro.
Disclaimer: This article is for informational purposes only and should not be considered financial advice. Always do your research before making any investment decisions.