What Is the Bitcoin Misery Index (BMI)?
Let me explain the Bitcoin Misery Index, or BMI, directly to you. It's a straightforward measurement of Bitcoin's price action, scaled from 0 to 100. This index uses contrarian economic indicators, meaning opportunities often arise opposite to what conventional signals suggest. It factors in elements like win ratios and volatility to give you a clear picture of market sentiment.
Key Takeaways on the BMI
You should know that the BMI was developed in 2018 by Tom Lee, co-founder of Fundstrat Global Advisors. It calculates based on the percentage of winning trades relative to total trades, plus volatility, all on a 100-point scale where zero means maximum misery. When the index dips below 27, it's in 'misery' territory. As a contrarian tool, the closer it gets to zero, the stronger the signal becomes for you to buy, indicating that prices might not drop further and profits could be ahead.
Understanding the Bitcoin Misery Index (BMI)
Diving deeper, I created this index—well, Tom Lee did—in 2018 to capture how traders feel about Bitcoin. It blends the win rate of trades with market volatility, outputting a score from zero to 100. If it's below 27, traders are generally unhappy with their outcomes, signaling misery. But here's the contrarian twist: that's exactly when you should consider buying, as it suggests the bottom is near and better trades are coming.
Bitcoin's Price History
Let's look at Bitcoin's rollercoaster ride. Interest surged in 2016, with BTC's price jumping 123% by year-end. By 2017, investors flooded in, driving it to nearly $20,000 in December. But if you thought the rise would continue into 2018, you were wrong—it dropped over 50%. Popularity kept growing through 2018, 2019, and 2020, and in 2021, it hit $69,000 in November before crashing to about $35,000 by January 2022.
Threats to Bitcoin Profitability
As Bitcoin's appeal has grown, so have the risks threatening its stability. Countries like China have outright banned cryptocurrencies over worries about financial stability, money laundering, and fraud, leading to heavy regulations elsewhere. You also face security issues: storing assets in hot wallets connected to exchanges makes them vulnerable to hacks. Major incidents include Mt. Gox losing over $450 million and Coincheck over $500 million. This uncertainty birthed the BMI as a way to quantify the resulting misery.
Goals of the Bitcoin Misery Index
According to Fundstrat, the BMI acts as a proxy for how investors feel about Bitcoin's price movements. It categorizes sentiment: happy from 100 to 67, neutral from 66 to 28, and miserable from 27 to 0. Remember, cryptocurrency trading involves risks like transaction, interest rate, leverage, counterparty, and country risks. Unlike fiat currencies, there's no central bank backing you up if things go south. Success in Bitcoin favors those who can swiftly analyze price shifts, news impacts, and execute trades. Indexes like this can create self-fulfilling prophecies—if everyone believes a low score means buy, they'll act on it. But keep in mind, the BMI is backward-looking; it reflects past sentiments but won't predict hacks, SEC approvals, or new regulations.
Related Questions
You might wonder about the Bitcoin 200-day moving average—it's simply a measure of the asset's long-term performance by averaging prices over 200 days. Has Bitcoin lost value? It's volatile, hitting $69,000 in late 2021 and dropping since, but overall, it's multiplied in value over time. How many Bitcoins are left? As of February 2022, about 2 million remain to be mined.
Final Note on Investing
Investing in cryptocurrencies or ICOs is highly risky and speculative. This isn't advice from me or anyone to jump in—consult a professional for your situation. I make no guarantees on the info here.
Other articles for you
Asset financing involves using a company's assets like inventory or accounts receivable as collateral to secure short-term loans for working capital needs.
A Qualified Personal Residence Trust (QPRT) is an irrevocable trust that helps reduce gift taxes by removing a home from your estate while allowing you to live there for a set period.
Fiscal policy involves government use of taxes and spending to influence economic conditions like employment and inflation.
The cost of debt represents the effective interest rate a company pays on its borrowed funds, influencing its overall financial strategy.
The gift tax is a federal tax on transfers of money or property exceeding certain limits, with exclusions and reporting requirements.
A certificate of insurance (COI) is a document that verifies an active insurance policy and outlines its key details to prove coverage.
Positive correlation occurs when two variables move in the same direction, influenced by similar factors.
Employment agency fees are charges paid to agencies for successfully placing employees with companies.
Green bonds are debt instruments that fund environmental projects, offering investors returns while supporting sustainability.
A mature industry is a stable, established sector past its growth phase, characterized by larger companies, slower growth, and consolidation.