Bitcoin is a volatile beast. One only needs to look back to when it was released to see it traded at well less than a dollar. Eleven years later and it is trading at just over $9,000. During its short time on the open market, it has been subject to massive price swings. LedgerX and T3 are partnering to create a tool, the BitVol, that will allow LedgerX clients to better track these swings and (hopefully) profit off of it.
Tracking volatility is not a new concept. The VIX currently measure volatility on the stock market by tracking the cost of futures insurance. The higher the cost of insurance, the more likely that price swings will take place.
Crypto has had an equivalent in the Fear/Greed Index. This online widget aggregates several data points, including drawdowns, market momentum, social media, etc.
LedgerX has not disclosed what metrics it will take into creating the BitVol, or their cryptocurrency VIX. But CEO Zach Dexter promises the indicator will be robust, pulling from multiple sources. In an interview with The Block, he stated, “The more data we can add, the more high-quality of an index we can display.”
Furthermore, the creation of the BitVol would allow other financial products to be built off of it, similar to the stock market’s VIX. An increase in volatility means more opportunities to make, or lose, large amounts of money. According to the Wall St Journal, this increased interest is evident in that over $1 trillion has been invested in VIX derivatives since the beginning of the year.
T3 CEO, Simon Ho is similarly bullish on his upcoming creation. “The launch of the BitVol index means investors now have clearer visibility about volatility in the Bitcoin market, and they will be able to make more informed trading decisions as a result.
While the BitVol may not get hearts racing for the everyday consumer, it does indicate the crypto market’s maturing. As Bitcoin becomes more entrenched in the financial world, it resembles more traditional financial products. Before 2018 cryptocurrencies could only be bought and sold on exchanges. Now thousands of cryptos can be traded on margin, shorted on futures markets, used as collateral on loans, and earned as rewards in decentralized finance.
For years the siren call for the crypto-faithful was “Institutional Investors.” However, these more sophisticated investors are changing the landscape to better match the stock market’s offerings.
Keeping up with these developments is beyond the scope of most crypto investors. However, the ones that do will have a significant advantage when it comes to trading.