3 Safety Signals to Watch Before Buying the Bitcoin Dip

Bitcoin dropped 27% between March 14th and July 6th, the biggest fall since it bottomed near $15,000 a coin back in November of 2022. And if you track its week-to-week price moves, you'll see the crypto kingpin is now in a downtrend for the first time since then – making lower lows and lower highs. And, sure, you can YOLO into bitcoin now and things could work out great. But what if this dip keeps… dipping?

As Bitcoin continues to trade within a broad range, with a downwards bias, many traders and investors are wondering whether this could be the bottom or if there’s more pain to come.

While no one can say for sure, there are a few technical indicators that could provide some guidance.

Here are three safety signals that might indicate that Bitcoin is ready for the next bull run.

1. Bitcoin Reclaiming Its 21-Week Exponential Moving Average

When it comes to Bitcoin, no one has a crystal ball. Buying it (or any investment, for that matter) is never going to be completely “safe.”

But if you're looking for a barometer for Bitcoin's general trajectory, the 21-week exponential moving average (EMA) usually does the trick. It tallies up Bitcoin's closing prices over the past 21 weeks to get an average price line (yellow, in the chart).

However, unlike a simple moving average (SMA), the EMA gives extra weight to recent weeks—making it more responsive to Bitcoin's latest moves.

Notice in the chart that Bitcoin closed last week below its 21-week EMA, which has started to slope downward. You'll want to see Bitcoin close a week back above that average—and then stay above it—to signal that buyers are back in charge of the trend.

2. Bitcoin's Hash Ribbons Indicator Firing a “Buy” Signal

Since the halving in April, miners have spent more time and energy to produce the same number of coins. That's caused weaker miners to stop mining, leading to a drop-off in Bitcoin's “hash rate” (the total computing power miners use).

The hash ribbons indicator by Capriole Investments currently shows that miners are in the “capitulation phase”—when the 30-day moving average of the hash rate is below the 60-day moving average.

Now, two things need to happen for the hash ribbons indicator to fire a Bitcoin “buy” signal (blue dot in the chart). First, the hash rate's 30-day moving average must climb back above the 60-day one (to show that mining activity is on the mend).

Second, the ten-day moving average of Bitcoin's price must be above the 20-day moving average (to show buyer momentum is on the mend too).

By my count, the indicator flashed 14 long-term Bitcoin buy signals since 2014, with a two-out-of-three strike rate.

If you fancy those odds, this piece explains in more detail how to use the hash ribbons indicator.

3. Futures Funding Rates Turning Negative

Perpetual swaps (a.k.a. “perps”) are a type of Bitcoin futures contract available on major crypto exchanges like Binance, Bybit, and OKX.

These derivative contracts allow traders to bet on Bitcoin's price going up (long) or down (short) using leverage (borrowed money). Unlike traditional futures, which trade on the Chicago Mercantile Exchange (CME), perps don't have expiry dates. Instead, traders pay “funding rates” to keep the contract price in line with the spot price (the market price of Bitcoin).

Now, when there's high demand for short contracts, those funding rates can turn negative. That means traders who are shorting Bitcoin are willing to pay money each day to keep their positions open—a sign of short-seller euphoria, which can be a contrarian buy signal.

Funding rates aren't negative just yet (see the chart), but they're getting pretty close to the mark.

Now, those rates don't have to go negative this time, but if they do, the probability of Bitcoin finding a low here would go up in my books. That's because big traders typically let go of their short positions (by buying back those contracts) when they get too expensive to hold.

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