Bitcoin Misery Index (BMI)

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Bitcoin Misery Index (BMI)

What Is the Bitcoin Misery Index (BMI)?

The Bitcoin Misery Index (BMI) measures the price movement of Bitcoin. It has a scale of 0 to 100 and employs contrarian economic indicators, which move in the opposite direction of traditional indicators. It takes into account a variety of market indicators such as win ratios and volatility.

Key Takeaways

  • Tom Lee, a co-founder of Fundstrat Global Advisors, published the Bitcoin Misery Index (BMI) in 2018.
  • The index takes into account the ratio of successful transactions to total trades as well as volatility; it is measured on a 100-point scale, with zero indicating the most suffering.
  • When the index falls below 27, it is called “in misery.” The closer the index is to zero as a contrarian measure, the stronger the signal to “buy.”

Understanding the Bitcoin Misery Index (BMI)

Tom Lee, a co-founder of Fundstrat Global Advisors, invented the BMI in 2018. The indicator takes into account the winning trade proportion as well as volatility. It displays a value ranging from 0 to 100. When the index falls below 27, it shows “misery,” which suggests that traders are dissatisfied with the outcomes of their deals. As a contrarian index, the closer the index is to zero, the more pronounced the signal to “buy.” It is a “buy” signal because traders think prices cannot fall much further and that winning deals are imminent.

Price History

Bitcoin (BTC) interest surged considerably in 2016, with the BTC price climbing 123% at the end of the year. By 2017, investors were pouring money into Bitcoin, driving the price up to just about $20,000 in December. Investors expecting Bitcoin prices to continue their spectacular ascent after December 2017 were greeted with a 50% drop.

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Bitcoin’s popularity increased in 2018, 2019, and 2020. In 2021, it peaked at $69,000 in November before falling to about $35,000 in January 2022.

Threats to Bitcoin Profitability

As public interest in Bitcoin has grown, so have risks to its stability. As a consequence, numerous nations have outlawed or imposed stringent rules on cryptocurrencies. China, for example, has prohibited cryptocurrencies because to worries about financial stability, money laundering, and fraud.

Cryptocurrency investors must also consider the potential of their digital assets being stolen if they are held in “hot wallets”—digital wallets that are actively linked to cryptocurrency exchanges through the Internet. Several exchanges, like Mt. Gox, which lost over $450 million, and Coincheck, which lost over $500 million, have been hacked.

The BMI was created in response to the uncertainties around regulatory and security issues.

Fundstrat

Goals of the Bitcoin Misery Index

The BMI, according to Fundstrat Insight, is a proxy for investor views towards Bitcoin’s price movement. It reflects whether traders and investors are delighted (100-67), neutral (66-28), or unhappy (27-0) with price movements.

Trading and investing in cryptocurrencies exposes you to a variety of risks, including transaction risk, interest rate risk, leverage risk, counterparty risk, and country risk. Unlike trading US dollars or euros, you must deal with additional dangers posed by assets based on a decentralized ledger. If anything goes wrong with a cryptocurrency and there is no central bank to serve as a guarantee, you may have no recourse or protection.

Because Bitcoin investment is very hazardous and speculative, it benefits individuals who can swiftly assess price changes and grasp the significance of news releases, and then conduct buy or sell orders appropriately.

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Investors are prone to self-fulfilling prophesies as a result of indexes. If investors feel that when an index reaches a certain level, it signifies an opportunity to purchase, they will wait until it reaches that level before beginning to buy.

Indexes, although useful as early warning indicators of market mood, are backward-looking measurements. The BMI cannot anticipate if a cryptocurrency exchange will be attacked by hackers, nor can it predict whether the Securities and Exchange Commission (SEC) will approve a new U.S.-based exchange or Bitcoin-backed securities. It will only inform you how other investors and traders felt in the past at any particular time.

What Is the Bitcoin 200-Day Moving Average?

The 200-day moving average measures the long-term performance of an asset. It computes a 200-day moving average price for Bitcoin.

Did Bitcoin Lose Value?

Bitcoin is a volatile investment. Its value fluctuates on a regular basis; it peaked at $69,000 in late 2021 and has since decreased in value. However, its worth has grown numerous times during its history.

How Many Bitcoins Are Left?

There are around 2 million Bitcoins remaining to be mined as of February 2022.

Investing in cryptocurrencies and other Initial Coin Offerings (“ICOs”) is very dangerous and speculative, and this article is not a suggestion by Investopedia or the author to do so. Because every person’s circumstance is different, a knowledgeable specialist should always be contacted before making any financial choices. Investopedia makes no guarantees or warranties about the accuracy or timeliness of the information provided on this site.

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