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Two New Ways to Measure Crypto Mania

Two New Ways to Measure Crypto Mania 101
Source: iStock/Kameleon007

Market sentiment data could be one of the better ways to gauge the mania taking place in crypto assets. Two new instruments have been introduced in order to measure it.

On Monday, Thomson Reuters, a Canadian multinational mass media and information firm, announced it has added Bitcoin sentiment to its financial data feeds that are used by professional traders around the world.

A new version of its MarketPsych Indices will scan over 400 websites, many specific to cryptocurrencies, to capture market-moving sentiment and themes, the company said in a press release.

“News and social media are driving the investment and risk management process more than ever with the continuing rise of passive and quant-driven trading,” said Austin Burkett, global head, Quant and Feeds, Thomson Reuters.

Meanwhile, on Friday, Fundstrat Global Advisors' Head of Research Tom Lee introduced the Bitcoin Misery Index, BMI, describing it as a proxy for how investors feel about Bitcoin’s “price action.” The BMI is a numerical index ranging from 0 to 100 and incorporating the win-ratio - the percentage of days that Bitcoin is up - and the upside less downside volatility.

It is supposed to be seen as something similar to the Relative Strength Index (RSI) or Moving Average Convergence/Divergence (MACD), used to tell if a stock or index is oversold or overbought. For example, it is oversold when the reading is low, such as around 30 (on the RSI), and when it is around 70, it is considered overbought.

In this case, the trigger points are 27 for a Buy signal and 67 for a Sell signal. Standing currently at 18.8, it is brightly flashing oversold, its lowest point since 16.2 in September 2011.

“When the Bitcoin Misery Index is at ‘misery’ (below 27), Bitcoin sees the best 12-month performance. A signal is generated about every year,”Lee explained to CNBC in a Friday report. "When the BMI is at a 'misery' level, future returns are very good." He adds that you are supposed to think of this index “as a way to measure how happy or sad you are owning Bitcoin.”

Similar to other sentiment indicators, the Bitcoin Misery Index is meant to be a contrarian indicator. When the misery index is low, investors should buy, and vice versa. “While short term the low points are a signal of pain, long term it could be a great entry way into Bitcoin,” Lee said.

In general, the emergence of artificial intelligence technologies, graphs and indexes targeted towards cryptocurrency traders is another acknowledgement of their presence on the market. Put simply, it gives the crypto markets credibility in the eyes of traditional investors and traders.

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