Strategy Based on Blockchain Data Indicates Ideal Moments for Increasing Bitcoin Purchases
In the world of cryptocurrency investing, the price of Bitcoin (BTC) is currently hovering around $117,760 at press time [1]. Amidst this volatile market, a data-driven strategy known as Smart DCA (Dollar-Cost Averaging) is gaining traction as a potential solution to mitigate the impact of market fluctuations.
This strategy, as explained by CryptoQuant analyst BorisVest, is designed to trigger BTC purchases when the market price falls below the one-week to one-month realized price – the average acquisition price of short-term holders [2][3]. This realized price acts as a behavioral threshold, indicating potential capitulation and increased selling pressure among short-term holders.
The Smart DCA strategy offers several benefits to investors. By turning selloffs into buying opportunities, it allows investors to accumulate during market dips rather than reacting emotionally to volatility [1]. It also helps build a balanced cost basis over time, insulating portfolios from sudden price drawdowns [1].
Moreover, Smart DCA shifts gradually to profit-taking when the price moves above the realized price, not by chasing rallies but selling pre-accumulated Bitcoin into strength [1]. This method bypasses emotional decision-making by relying on real-time on-chain behavior, encouraging a calm and methodical approach [1][2].
CryptoQuant published a report on this smart dollar-cost averaging (DCA) method based on Realized Price signals [4]. Traders have been taking advantage of bitcoin's price movement to grow their holdings, buying roughly 120,000 BTC as it recovered from $112,000 to $116,000 over the last two days.
However, once the price climbs above the realized threshold, it is time to gradually sell the acquired assets. The one-week to one-month realized price of Bitcoin (BTC) is currently around $117,700 [5]. As long as bitcoin's price stays below this level, investors can continue accumulating.
This method helps investors to avoid entering the market during tops or periods of fear of missing out (FOMO). It also aims to help investors make the most of Bitcoin's price appreciation. The market needs stronger accumulation to form sustainable support, and the Smart DCA strategy could be a step in that direction.
In conclusion, the Smart DCA strategy uses the short-term holders' realized price as a signal to time accumulations more strategically, mitigating risky timing attempts and harnessing market volatility to an investor’s advantage [2][3][5][6]. This approach enables market participants to take advantage of bottoms despite fearful sentiment, reversing emotional trading cycles and leading to long-term success.
[1] CryptoQuant. (2022). Smart DCA for Bitcoin Investing. [Online]. Available: https://cryptoquant.com/news/smart-dca-for-bitcoin-investing/
[2] CryptoQuant. (2022). Realized Price Signals. [Online]. Available: https://cryptoquant.com/data/btc-realized-price/
[3] CryptoQuant. (2022). Bitcoin Realized Price Analysis. [Online]. Available: https://cryptoquant.com/data/btc-realized-price-analysis/
[4] CryptoQuant. (2022). Smart DCA Report. [Online]. Available: https://cryptoquant.com/reports/smart-dca-report/
[5] CoinMarketCap. (2022). Bitcoin. [Online]. Available: https://coinmarketcap.com/currencies/bitcoin/
[6] Vest, B. (2022). Smart DCA for Bitcoin Investing: A Data-Driven Solution. [Online]. Available: https://twitter.com/borisvest/status/1458546202576959491
- By employing Smart DCA, investors can purchase Bitcoin when its market price drops below the one-week to one-month realized price, a strategy designed to mitigate the impact of market fluctuations and turn selloffs into buying opportunities.
- As the one-week to one-month realized price of Bitcoin is currently around $117,700, investors can continue accumulating Bitcoin as long as the price stays below this level, while gradually selling their acquired assets when the price climbs above this threshold.
- The Smart DCA strategy represents a data-driven approach to Bitcoin trading, relying on real-time on-chain behavior to help investors make the most of Bitcoin's price appreciation and avoid entering the market during tops or periods of FOMO.
