Buying Bitcoin at significantly higher prices than just a few months ago can be challenging. However, with the right strategies, you can buy Bitcoin during dips with a favorable risk-to-reward ratio while riding the bull market.
Confirming Bull Market Conditions
Before accumulating, ensure you're 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.
Avoid Buying when the Z-score reaches high values, such as above 6.00, which would indicate the market is overextended and nearing a potential bearish reversal. If the Z-score is below this, dips likely represent opportunities, especially if other indicators align. Don't accumulate aggressively during a bear market. Focus instead on finding the macro bottom.
Short-Term Holders
This chart reflects the average cost basis of new market participants, offering a glimpse into the Short-Term Holder activity. Historically, during bull cycles, whenever the price rebounds off the Short-Term Holder Realized Price line (or slightly dips below), it has presented excellent opportunities for accumulation.
Gauging Market Sentiment
Though simple, the Fear and Greed Index provides valuable insight into market emotions. Scores of 25 or below often signify extreme fear, which often accompanies irrational sell-offs. These moments offer favorable risk-to-reward conditions.
Spotting Market Overreaction
Funding Rates reflect trader sentiment in futures markets. Negative Funding during bull cycles are particularly telling. Exchanges like Bybit, which attract retail investors, show that negative Rates are a strong signal for accumulation during dips.
When traders use BTC as collateral, negative rates often indicate excellent buying opportunities, as those shorting with Bitcoin tend to be more cautious and deliberate. This is why I prefer focusing on Coin-Denominated Funding Rates as opposed to regular USD Rates.
Active Address Sentiment Indicator
This tool measures the divergence between Bitcoin's price and network activity, when we see a divergence in the Active Address Sentiment Indicator (AASI) it indicates that there's overly bearish price action given how strong the underlying network usage is.
My preferred method of utilization is to wait until the 28-day percentage price change dips beneath the lower standard deviation band of the 28-day percentage change in active addresses and crosses back above. This buy signal confirms network strength and often signals a reversal.
Conclusion
Accumulating during bull market dips involves managing risk rather than chasing bottoms. Buying slightly higher but in oversold conditions reduces the likelihood of experiencing a 20%-40% drawdown compared to purchasing during a sharp rally.
Confirm we're still in a bull market and dips are for buying, then identify favorable buying zones using multiple metrics for confluence, such as Short-Term Holder Realized Price, 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 capitalize on the unique opportunities presented by bull market dips.
Frequently Asked Questions
How much of your portfolio should be in precious metals?
First, let's define precious metals to answer the question. Precious Metals are elements that have a very high relative value to other commodities. They are therefore very attractive for investment and trading. The most traded precious metal is gold.
There are also many other precious metals such as platinum and silver. While gold's price fluctuates during economic turmoil, it tends to remain relatively stable. It is also relatively unaffected both by inflation and deflation.
In general, prices for precious metals tend increase with the overall marketplace. But they don't always move in tandem with one another. If the economy is struggling, the gold price tends to rise, while the prices for other precious metals tends to fall. This is because investors expect lower interest rates, making bonds less attractive investments.
In contrast, when the economy is strong, the opposite effect occurs. Investors are more inclined to invest in safe assets, such as Treasury Bonds, and they will not demand precious metals. Since these are scarce, they become more expensive and decrease in value.
Diversifying across precious metals is a great way to maximize your investment returns. You should also diversify because precious metal prices can fluctuate and it is better to invest in multiple types of precious metals than in one.
Is buying gold a good option for retirement planning?
Although gold investment may not seem appealing at first glance due to the high average global gold consumption, it's worth considering.
The best form of investing is physical bullion, which is the most widely used. There are other ways to invest gold. You should research all options thoroughly before making a decision on which option you prefer.
For example, purchasing shares of companies that extract gold or mining equipment might be a better option if you aren't looking for a safe place to store your wealth. If you are looking for cash flow from your investment, buying gold stocks will work well.
You can also invest your money in exchange-traded fund (ETFs), which give you exposure to the gold price by holding securities related to gold. These ETFs usually include stocks of precious metals refiners or gold miners.
What are the pros & con's of a golden IRA?
An Individual Retirement Account (IRA), unlike regular savings accounts, doesn't require you to pay tax on interest earned. An IRA is a great option for those who want to save money, but don't want tax on any interest earned. However, there are disadvantages to this type investment.
For example, if you withdraw too much from your IRA once, you could lose all your accumulated funds. The IRS may prevent you from taking out your IRA funds until you reach 59 1/2. If you do withdraw funds from your IRA you will most likely be required to pay a penalty.
A disadvantage to managing your IRA is the fact that fees must be paid. Many banks charge between 0.5%-2.0% per year. Other providers charge monthly management fees ranging from $10 to $50.
You can purchase insurance if you want to keep your money out of a bank. Most insurers require you to own a minimum amount of gold before making a claim. Insurance that covers losses upto $500,000.
You will need to decide how much gold you wish to use if you opt for a gold IRA. Some providers limit the amount of gold that you are allowed to own. Some providers allow you to choose your weight.
Also, you will need to decide if you want to buy physical gold futures contracts or physical gold. Physical gold is more expensive than gold futures contracts. Futures contracts offer flexibility for buying gold. They allow you to set up a contract with a specific expiration date.
You also need to decide the type and level of insurance coverage you want. Standard policies don't cover theft protection, loss due to fire, flood or earthquake. It does include coverage for damage due to natural disasters. You might consider purchasing additional coverage if your area is at high risk.
Apart from insurance, you should consider the costs of storing your precious metals. Storage costs are not covered by insurance. Banks charge between $25 and $40 per month for safekeeping.
A qualified custodian is required to help you open a Gold IRA. A custodian helps you keep track of your investments, and ensures compliance with federal regulations. Custodians cannot sell your assets. Instead, they must hold them as long as you request.
Once you've decided which type of IRA best suits your needs, you'll need to fill out paperwork specifying your goals. Information about your investments such as stocks and bonds, mutual fund, or real property should be included in your plan. The plan should also include information about how much you are willing to invest each month.
After filling in the forms, please send them to the provider. The company will review your application and send you a confirmation letter.
If you are thinking of opening a gold IRA for retirement, a financial professional is a great idea. A financial planner can help you decide the type of IRA that is right for your needs. You can also reduce your insurance costs by working with them to find lower-cost alternatives.
What does gold do as an investment?
Gold's price fluctuates depending on the supply and demand. Interest rates are also a factor.
Because of their limited supply, gold prices can fluctuate. You must also store physical gold somewhere to avoid the risk of it becoming stale.
Statistics
- If you take distributions before hitting 59.5, you'll owe a 10% penalty on the amount withdrawn. (lendedu.com)
- (Basically, if your GDP grows by 2%, you need miners to dig 2% more gold out of the ground every year to keep prices steady.) (smartasset.com)
- Contribution limits$6,000 (49 and under) $7,000 (50 and up)$6,000 (49 and under) $7,000 (50 and up)$58,000 or 25% of your annual compensation (whichever is smaller) (lendedu.com)
- This is a 15% margin that has shown no stable direction of growth but fluctuates seemingly at random. (smartasset.com)
- Indeed, several financial advisers interviewed for this article suggest you invest 5 to 15 percent of your portfolio in gold, just in case. (aarp.org)
External Links
wsj.com
- Saddam Hussein's Invasion Helped Uncage a Bear In 1990 – WSJ
- Do you want to keep your IRA gold at home? It's Not Exactly Legal – WSJ
forbes.com
- Gold IRA – Add Sparkle to Your Retirement Nest Egg
- Understanding China's Evergrande Crisis – Forbes Advisor
bbb.org
investopedia.com
How To
How to Hold Physical Gold in an IRA
The easiest way to invest is to buy shares in companies that make gold. However, there are risks associated with this strategy. It isn't always possible for these companies to survive. Even if they do survive, there is still the possibility of losing money to fluctuating gold prices.
Another option is to purchase physical gold. You can either open an account with a bank, online bullion dealer, or buy gold directly from a seller you trust. This option has many advantages, including the ease of access (you don’t have to deal with stock markets) and the ability of making purchases at low prices. It's also easy to see how many gold you have. You will receive a receipt detailing exactly what you paid. You also have a lower chance of theft than stocks.
There are however some disadvantages. Bank interest rates and investment funds won't help you. It won't allow you to diversify any of your holdings. Instead, you'll be stuck with what's been bought. Finally, the tax man might ask questions about where you've put your gold!
Visit BullionVault.com to find out more about gold buying in an IRA.
—————————————————————————————————————————————————————————————-
By: Matt Crosby
Title: Strategies to Buy Bitcoin Smartly During Bull Market Dips
Sourced From: bitcoinmagazine.com/markets/how-to-buy-bitcoin-during-bull-market-dips
Published Date: Fri, 27 Dec 2024 14:00:00 GMT
