New BTC ‘misery index’ Predicts 12-month Returns
A wall street analyst has created his own Bitcoin ‘misery index’ that measures the amount of discontent amongst Bitcoin investors and even predicts a price rise.
Thomas Lee, co founder of Fundstrat, is a wall street analyst and has focused his attention on creating tools to describe and predict the Bitcoin price. Thomas has created a misery index that quantifies the amount of discontent amongst Bitcoin investors and it is scaled between 0 and 100.
The misery index is currently at 18.8 which is the lowest it has ever been since August 2011. The index has been backtracked so that it can be compared with currently levels. Commentators have even considered the index as a way to predict Bitcoin highs and lows.
The level of 18.8 out of 100 is a good indicator that Bitcoin holders are absolutely miserable at the moment. The index comes as no surprise given the large transaction costs and times that consumers have suffered with for many months.
The low level, however, could be a key indicator of future profits because investors are encouraged to buy when it is low and sell when it is high. The measure is calculated based on the number of successful trades divided by the total number of trades and also the current volatility of the market.
Thomas Lee suggests that when the index is under 27 that investors should buy into Bitcoin. He says that the historical data suggests that after a low of 27 the misery index predicts a 12-month performance of Bitcoin profits.
Bitcoin has recently shed more than 20% in just a week and it is no wonder that the index infers a strong misery level. Many news outlets are still trying to make sense of the recent fall in price and have come up with numerous theories as to why it has occurred.
The misery index could be called a contrarian indicator in that it encourages people to buy when prices are down and visa versa when prices are high. Thomas Lee says that a price below 27 indicates a buy signal and a price above 67 indicates a sell signal.