Track Bitcoin Volatility With LXVX Index Offered By LedgerX
LedgerX believes that cryptocurrency traders should be provided with a facility that gauges the volatility of Bitcoin. In this regard, the derivatives trading platform has created an index to monitor the volatility through a benchmark index, taking a hint from the features offered in stock market.
On Monday, the company revealed the launch of LedgerX Volatility Index (LXVX) to monitor the anticipated volatility for Bitcoin. The company will plot a graph based on the index data from the strictly regulated Bitcoin options traded by multiple institutions over the last year.
Juthica Chou, chairman and chief risk officer of LedgerX, said that LXVX is analogous to the Cboe Volatility Index (VIX), a prominent gauge of the anticipated volatility of the stock market.
Juthica Chou elaborated as follows:
“[A volatility index] tells you the expected certainty that the market is forecasting … That’s what it tells you with respect to any market.”
In other words, the LXVX can be interpreted as “a bitcoin fear index,” as the VIX is known as the fear index of the stock market, she said. Chou, who started her career as a volatility trader at Goldman Sachs, said the VIX was an crucial barometer, and that’s why LedgerX planned to build one for Bitcoin.
Traders and investors can track the potential risk when managing their investments, she said. To illustrate, she quoted the volatility of Bitcoin right at the end of 2018, in comparison with the early part of this year, saying
“If you look basically since the start of the year, the LXVX is down about 20 percent so it’s down to about 68, and … this is still approximately three times the volatility of the stock market but it’s very telling in the bitcoin space because it shows that there is less of the fear and uncertainty than what existed [in] December.”
The index is not currently a tradable product, although the development of a tradable product is an objective in the months ahead. Institutional customers of LedgerX have been tracking the benchmark for the past few months and the facility is now offered to retail traders via the website of LedgerX.
Thriving in bear market
Independently, LedgerX confirmed that it had processed more than 50,000 Bitcoin derivatives worth more than $ 500 million since October 2017 when it was offered initially. The contracts were written for “a wide range of strikes,” Chou explained, highlighting the price at which an option could be exercised.
Even though other crypto space startups have endured from the sustained crypto bear market, it was actually more advantageous for LedgerX, as it contributes to more trades.
Chou said “We saw, for example, a lot of put options trading in December and the end of November while the broader market was selling off. Now that we’re bouncing back, we’re seeing a lot more call options.”