Buying Bitcoin at significantly higher prices than just a few months ago can be scary. However, with the right strategies, you can buy Bitcoin during dips with a favorable risk-to-reward ratio while riding the bull market.
Determining a bull market position
Before you stock up, make sure you're still in a bull market. The MVRV Z-score helps identify overheated or undervalued situations by analyzing the gap between market value and realized value.
Avoid Buying when the Z score reaches high values, such as above 6.00, which would indicate that the market is overbought and approaching a possible bearish reversal. If the Z score is lower than this, dips are likely to represent opportunities, especially if other indicators are aligned. Do not accumulate aggressively during a bear market. Instead focus on finding the macro bottom line.
Short term holders
This chart shows the average cost base of new entrants into the market, providing an insight into short-term Custodian activity. Historically, during bull runs, when the price comes back off the Short term custodian produced line (or slightly falling below), it has provided good opportunities for collection.
Measuring market sentiment
Although it is simple, the Index of Fear and Greed providing valuable insight into market sentiment. Scores of 25 or below often indicate extreme fear, which is often accompanied by irrational selling. These times offer favorable risk-to-reward conditions.
Seeing an overreaction in the market
Funding Rates reflects the sentiment of traders in futures markets. Negative financing during bull cycles is particularly interesting. Exchanges like Bybit, which attract retail investors, show that negative rates are a strong signal to rally during downturns.
When traders use BTC as collateral, negative levels often indicate good buying opportunities, as those short of 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 difference between Bitcoin price and network activity, when we see a difference in the Active Address Awareness Signal (AASI) it indicates that price action is too bearish given the strength of the underlying network usage.
My preferred practice is to wait for the 28-day percentage change to fall below the lower standard deviation band of the 28-day percentage change in active addresses and cross back to h – high. This buy signal determines the strength of a network and often signals a reversal.
Decision
Rallying during a bull market crash involves managing risk rather than bottom chasing. Buying slightly higher but in pre-sale conditions reduces the odds by 20%-40% compared to buying at a sharp rally.
Confirm that we are still in a bull market and that there are dips to buy, then identify favorable buying zones using multiple metrics for convergence, such as Short-Term Owner Affordability, Fear & Greed Index, Funding Rates, and AASI . Prioritize small incremental purchases (dollar cost averaging) over going all in and focus on risk-to-reward ratios rather than absolute dollar amounts.
By combining these strategies, you can make informed decisions and take advantage of the unique opportunities that come with a bull market downturn. For a more in-depth look at this topic, check out a recent YouTube video here: How to Collect Bitcoin Bull Market Crashes
For more detailed Bitcoin analysis and to access advanced features such as live charts, personalized indicator alerts, and in-depth business reports, check out Bitcoin Pro Magazine.
Disclaimer: This article is for informational purposes only and should not be considered financial advice. Always do your own research before making any investment decisions.
