Understanding the Bitcoin Misery Index (BMI)
First introduced by Wall Street trader Tom Lee in 2018, the Bitcoin Misery Index (BMI) is a tool that utilizes Bitcoin’s price movements to generate a value ranging from 0 to 100.
Traders interpret this value as a buy or sell signal. When the BMI falls below 27, it indicates a state of “misery,” considered a strong buy signal.
On the other hand, when the BMI surpasses 67, it signifies a state of “happiness,” suggesting that Bitcoin is likely to experience a decline.
The index calculation assesses volatility and the winning to total trades ratio.
The BMI is categorized as a contrarian index and is colloquially known as one of the “Fear Indexes.” These indexes gauge volatility and use it to derive a numerical value reflecting the overall market sentiment.
In this regard, the Bitcoin Misery Index shares similarities with the VIX, a volatility index that tracks financial options prices.