The Bitcoin Misery Index (BMI) is a tool that traders can use to gain a better understanding of the current sentiment in the digital currency market. To put it simply, the Bitcoin Misery Index measures bitcoin’s momentum based on its volatility and current trading value.
But there’s much more to BMI than a simple textbook answer. So, let’s dive deeper into the details behind the Bitcoin Misery Index and look at how traders can use it.
What is the Bitcoin Misery Index?
The BMI was developed in early 2018 by Thomas Lee. Lee is the founder and current managing partner of Fundstrat Global Advisors. Additionally, Lee has nearly three decades of experience as a Wall Street analyst. So, it’s safe to say he knows what he’s talking about.
According to Lee, the BMI is a way to determine how sad or happy bitcoin investors are based on market prices. The index is determined based on a scale of 0 through 100. It takes into account various factors such as volatility along with winning trades.
If the Bitcoin Misery Index moves below 27, then it is at the “misery level.” Since the index is contrarian, the buy signal becomes louder as the number moves toward zero.
How Does BMI Help Investors and Traders?
It goes without saying that the digital asset market is highly speculative and very risky. Investing and trading in bitcoin favors those who have the ability to quickly identify shifts in the price. Additionally, those who have a solid understanding of how news and announcements effect the market will enjoy a decided advantage as well.
BMI came into being as a tool traders can use to have a better grasp on when to place sell or buy orders. Of course, those who rely solely on BMI as their key indicator for trading often rush into buying or sell and wind up regretting their decision. It’s critical to analyze all factors that may impact prices, which includes the BMI.
However, there are also limitations to the Bitcoin Misery Index. While it does a decent job of forecasting market sentiment, it doesn’t have the ability to predict when a major crypto exchange hack may occur. It also won’t give an accurate reading of how new rules or regulations from government entities like the SEC might impact the price of bitcoin.
Does the BMI have value? Of course. Should you use it as the sole factor for determining when to buy and sell bitcoin? Probably not.
The Bitcoin Misery Index is a great tool developed by a very market-savvy individual. It can provide insight into the market sentiment of bitcoin. However, it shouldn’t be the only tool you use when making your trading decisions.
There are plenty of tools and resources available for bitcoin traders. Many of which you can learn about if you subscribe to the Bitcoin Market Journal!