Bitcoin and other cryptocurrencies have been dominated by extreme price fluctuations throughout their histories. This has enabled savvy (or lucky) investors to strike it rich, particularly if they were able to get in on their investments early and before digital currencies became broadly popular in the past couple of years. On the other hand, though, this volatility means that investors are behaving in a highly speculative way when it comes to cryptocurrencies overall.
Now, Fundstrat's Tom Lee has set up a "Bitcoin Misery Index" to help investors come up with the right time to make their purchases. (See more: Analyst's New 'Bitcoin Misery Index' Hits Lowest Level in 6 Years.)
In recent days, this index has been at an all-time low, and Lee believes that might indicate a price point of $20,000 or more for BTC sometime this year.
Lee's History of Success
Lee has a record of success when it comes to predicting bitcoin's price movements, according to Bitcoin.com. He accurately intuited the rally over $10,000 last year, for example. Now, while many investors are wondering if cryptocurrencies have run out of fuel, Lee remains bullish.
Part of the reason is his "Misery Index," which ranges from 0 to 100 and uses contrarian economic indicators. It incorporates many different market factors, such as winning trades and volatility, in its considerations.
As of early March, the index was at 18.8, the lowest level it has experienced since 2011; Lee suggests that the lower the index figure, the better the investment opportunity for investors. "While short-term the low points are a signal of pain, long term it could be a great entry way into bitcoin," he explained.
Why Is Bitcoin's Misery Index So Low?
Lee points out that "it is really uncommon to be this miserable owning bitcoin," suggesting that it has only happened a few times before. Why might investors in the leading cryptocurrency feel this way?
One major indicator is that prices of bitcoin have flatlined, falling from a high of around $20,000 late last year and then stagnating early in 2018. (See more: Bitcoin Price Crosses $19K: How Soon Before $20,000?) Along with this stagnation, which has infiltrated other parts of the cryptocurrency world as well, investors are now beginning to wonder if the cryptocurrency bubble has popped or if it will pop soon.
Nonetheless, Lee believes that those steadfast enough in their investments could see a major turnaround. He believes that bitcoin prices could climb to $20,000 by mid-year and that it might reach $25,000 by the end of 2018.
Investing in cryptocurrencies and Initial Coin Offerings ("ICOs") is highly risky and speculative, and this article is not a recommendation by Investopedia or the writer to invest in cryptocurrencies or ICOs. Since each individual's situation is unique, a qualified professional should always be consulted before making any financial decisions. Investopedia makes no representations or warranties as to the accuracy or timeliness of the information contained herein. As of the date this article was written, the author owns bitcoin and ripple.