What Is Bitcoin Misery Index (BMI)?

The Bitcoin Misery Index (BMI), a metric that combines Bitcoin's price and volatility, gauges investor sentiment and provides insights into potential buying opportunities or cautious periods within the cryptocurrency market.

Oct 17, 2024 at 04:54 pm

1. What is Bitcoin Misery Index (BMI)?

The Bitcoin Misery Index (BMI) is a metric that gauges the overall sentiment and interest in Bitcoin by combining two key indicators: the Bitcoin price and its volatility. It was developed by Murad Mahmudov and introduced in 2019.

2. Formula for BMI

The BMI is calculated using the following formula:

BMI = Price Volatility + Price % Drop

Price Volatility: Standard deviation of daily Bitcoin price returns over a 60-day period

Price % Drop: Percentage decline in Bitcoin price from its all-time high (ATH)

3. Interpretation of BMI

The BMI can be interpreted as follows:

• Low BMI (below 70): Indicates that Bitcoin is relatively stable and there is low misery among investors.
• High BMI (above 70): Indicates that Bitcoin is experiencing high volatility and/or has significantly dropped from its ATH, leading to increased misery among investors.

4. Purpose of BMI

The BMI serves as a tool for investors to assess the overall sentiment and risk associated with investing in Bitcoin.

• Low BMI: May suggest potential buying opportunities, as the market is less fearful and volatile.
• High BMI: May indicate caution, as the market is potentially overvalued or experiencing stress.

5. Criticisms of BMI

• Subjective nature: The selection of a 60-day window for price volatility and the all-time high for price drop are subjective choices.
• Lagging indicator: The BMI is backward-looking, making it less useful for predicting future price movements.
• Not a comprehensive market measure: The BMI considers only two indicators and does not incorporate other factors that may influence Bitcoin's value.