Bitcoin derivatives exchange BitMEX has announced that from 5th January they will publish a 30 day bitcoin volatility index, measuring the cryptocurrency’s volatility against the United States dollar, and that they will create a tradable financial instrument based on the index.
Often known colloquially as a ‘fear index’, a volatility index provides a measure of how much the value of a currency or asset is fluctuating up and down during a given period of time. A similar index called the VIX is often used by stock market traders to gauge and hedge against risk, as well as for other trading strategies.
BitMex’s 30 day ‘Bitcoin Historic Volatility Index’ will take a time weighted average price from the USD/BTC exchange rate at the popular exchange Bitfinex, and use this to calculate an annualized volatility rate over a rolling 30-day period.
Traders using the BitMex derivatives exchange will be able to use the platform to place a bet on the future volatility of bitcoin. This will be done in the form of a futures contract quoted in volatility points, in which each point will have a fixed value of 0.01 BTC, and to take advantage of up to 5 times leverage when taking out a contract. This adds an extra dimension to bitcoin trading, allowing traders to bet on a big price change without needing to know whether the price will rise or fall, and will appeal to professional traders who are accustomed to having access to such instruments in the traditional financial markets.