Days after celebrating its fifth birthday, the company behind one of the United States’ leading Bitcoin derivatives markets has launched an unorthodox volatility index.
Bitcoin Fear Index
The index, also known as the LXVX (LedgerX Volatility Index), is based on implied volatility. This newfangled product will draw data from the cryptocurrency organization’s options market place to calculate volatility stats. LXVX is designed to help investors make better-informed decisions on future BTC price movements, specifically over a 30 day (one-month) period.
The LXVX will act as an extremely valuable tool for both retail and institutional crypto investors, much like the CBOE’s (Chicago Board Options Exchange) world-renowned Volatility Index (VIX), employed to help traders calculate volatility and price movements on the S&P 500. The VIX is often referred to as the ‘stock market fear index’, and allows investors to assess broader market sentiment within the U.S. financial realm.
Examples of how the VIX can be used include using the price data to calculate the volatility of the S&P 500, in terms of percentage, over the next month. Calculations used by investors include Current VIX Price/√12. At the time of writing the VIX price is at 18.35, so an investor would calculate:
18.35/√12 = 5.29%
The result of the calculation indicates we are estimated to witness the S&P 500 exhibit a volatility range of 5.29% over the next 30 days.
At the time of writing, the LXVX is displaying a level of 66.81. Using the same calculation we can estimate that Bitcoin’s volatility range for the next 30 days would be 19.2%.
66.81/√12 = 19.2%
Part Of The Plan
LedgerX’s chief executive, Paul Chou, recently stated in an interview with The Block that:
“A volatility index for bitcoin was part of the original business plan going back as long as five years ago.”
Chou, a long-time industry insider, went on to add that once LedgerX garnered a proper market, it decided to launch products, vehicles, and the like.
According to Chou, the newly-formed Bitcoin Index is three times more volatile than the current U.S. stock market. This is a fact, despite the recent bearish market sentiment across U.S. equity markets, which was triggered by a poor third-quarter earnings season, America/China trade tensions, and the Federal Reserve’s recent rate hike.
Paul went on to discuss how he, and many of his team, used to work at Goldman Sachs, stating that they would “use these types of indexes to understand how risky” their books were.
Such tools may be needed to provoke the interest of institutional investors in the digital-asset investment field. As well as pro-crypto legislation, over-the-counter trading, and increased security measures in the crypto-investment space — a concise selection of analytical investment tools, like the innovative LXVX will likely attract the institutional investment world.
Another crypto-based investment tool, which I believe will be of benefit to investors, would be one similar to the CBOE’s Put/Call Ratio. This ratio allows investors to see points of market minima and maxima within the options market, allowing them to forecast potential trend reversals.
Since the company’s inception five years ago, LedgerX has been proven to have made huge contributions to the evolution of the crypto investment industry, with an impressive record of notable milestones.
— LedgerX (@ledgerx) January 10, 2019
Earlier in 2018, Forbes reported that the cryptocurrency firm launched a U.S. CFTC (Commodities Futures Trading Commission) licensed Bitcoin savings product, allowing investors to make a fiat-based return on their BTC holdings.