Popular cryptocurrency pundit and Fundstrat Global Advisors analyst Tom Lee issued an update on his “Bitcoin Misery Index” in an interview with CoinTelegraph published on April 19. According to the analyst, Bitcoin is reaching new heights by the BMI indicators, establishing new markers that have yet to occur in a bear market.
While analytics firms differ in the market indicators they follow, Fundstrat uses the cleverly titled Bitcoin MIsery index as a way of gauging investor sentiment for the leading cryptocurrency by market capitalization. Lee designed the BMI as a way to inform investors on the relative misery of Bitcoin holders based on values such as coin price and volatility.
On April 2nd, the currency hit a BMI of 89 out of a maximum score of 100 (with the upper limit being associated with positive sentiments and 0 being outright misery). According to Lee, Bitcoin did not once break the 50 during all of 2018, despite the coin entering an extended bear market. In fact, Lee reports that Bitcoin has never achieved a BMI of greater than 67 in the midst of a bear market, giving some indication into the current state of cryptocurrency prices, leading Lee to conclude,
“It means that a bull market is likely starting.”
Lee had previously reported that the Bitcoin’s massive leap in BMI was giving mixed signals, saying
“Good–> Since 2011, BMI >67 only seen during $BTC bull markets. More evidence bull starting. Bad –> BMI >67 after peak, $BTC falls ~25% = Profit taking ST.”
However, he cautioned in the interview that elevated BMI values have traditionally correlated with a market drawback. Values above 67 have been an indicator to sell BTC, despite the positive sentiment for Bitcoin and its future outlook, as such elevations tend to be short lived. Values below 27 have been associated with buy signals, and give some indication that the currency is bottoming out and ready to swing in the other direction.
The index has not been full proof in predicting short term market movements, but has done fairly well in indicating longer trends. The last time BTC logged a score of 67 on the BMI scale was August 14, 2017. Selling at that time would have caused investors to miss out on Bitcoin’s epic bull run which took the currency to nearly $20,000, but did fall within several months of the coin turning bearish after positive price movement throughout 2017.
However, BTC’s last relative low in BMI was November 27, 2018, generating a score of 24. Following the buy signal at the time would have led investors to catch the relative bottom for Bitcoin as the currency traded near $3000–which would have result in over 80 percent profits at current price levels.
According to Lee, BTC trading at such a high level (>67) has led to a downturn in market prices “six out of six times,” with the average drop in price around 25 percent. Lee also pointed out that price retractions for Bitcoin following elevated BMI could be investors moving their profit into altcoins, as the market cycle for cryptocurrency has historically followed bullish runs for BTC followed by an elevation in alts.