Bitcoin Misery Index Sees the Crypto Hitting $25,000 In 2018
Throughout their histories the one common characteristics among virtual currencies such as Bitcoin (BTC) has been extreme volatility. While the wild price fluctuations have made some rich it has also hardened the view that investment decisions are being made based on mere speculation. The co-founder of Fundstrat Global Advisors, Tom Lee, has consequently come up with a solution aimed at assisting investors in determining the proper entry points. The solution is a tool known as Bitcoin Misery Index (BMI).
According to Lee the index is a way of measuring how sad or happy investors are in owning Bitcoin. Last week the index was hovering around the 18.8 mark based on a scale that stretches from 0 to 100. Per Lee this was the index’s lowest reading for the past seven years and is an indication that holders of the virtual currency are currently feeling miserable.
As a sentiment indicator the BMI is meant to serve as a contrarian indicator telling investors to buy when the index is low and to sell when the index is high. Some of the factors that the BMI takes into account include volatility as well as how many winning trades there were.
The BMI is coming at a time when Bitcoin has been going through a rough patch. The virtual currency has fallen after various reports came out indicating that regulatory scrutiny could once again increase. While this may hurt those who already hold the cryptocurrency Lee suggested that this was one of the optimal times to buy into the digital asset. He said that whenever the index went below a level 27, it always went up less than a year later.
Last week an exchange based in Hong Kong disclosed that some accounts had been compromised. At the same time regulatory scrutiny was expanded to virtual currency wallets and exchanges by the Securities and Exchange Commission. In Japan operations at two virtual currency exchanges were suspended by authorities for a period of 30 days. Five other exchanges were also ordered to make business improvements if they are to continue operating.
Sentiment in the virtual currency sector was also affected by a report that a trustee of the funds belonging to Mt. Gox, a defunct virtual currency exchange based in Japan, disposed of Bitcoins and Bitcoin Cash (BCH) worth approximately $400 million. According to Lee the level of misery that the index is indicating is relatively uncommon and it has only been recorded previously in January 2015, September 2016 and November 2012.
“And bitcoin was higher a month later. [The index] is telling us, it’s really tough to own it for the next week or even two weeks, three weeks. But we’re getting through this,” said Lee.
The co-founder of Fundstrat is the lone major strategist on Wall Street who issues regular reports as well as formal price targets for Bitcoin. Before be co-founded Fundstrat he was the chief equity strategist at JPMorgan Chase. Lee has forecast Bitcoin to hit $25,000 before this year comes to a close.