Cryptocurrency Volatility Index: An Efficient Way to Predict the Future CVI SpringerLink

The chart above shows the volatility of gold and several other currencies against the US Dollar. Series marked with an asterisk are not directly comparable to series not so marked because fiat currency markets are closed on weekends and holidays, and therefore some price changes reflect multiple-day changes. The crypto volatility index (CVI) is a decentralized VIX for cryptocurrency that allows users to restrict themselves against market volatility, as well as impermanent loss. This bilateral option transaction between two leading options desks on the best-in-class Bitcoin implied volatility index is a pivotal moment for cryptocurrency options and volatility space and pushes the industry forward. This is the first bilateral derivatives transaction linked to a Volmex Implied Volatility Index. As well, so-called ‘buy side’ institutions, e.g., investment management firms, etc., are likely to implement BVXS-based products to hedge portfolio tail risk (downside protection).

crypto volatility index

That is why these methods are often used as benchmark models to verify the efficiency of other methods even though there is a superiority from more recent methods [23, 30]. Technical analysis is also a popular approach used by traders to predict and manage volatility in the cryptocurrency market. Various technical analysis tools can assist in identifying patterns, trends, and potential price movements.

Factors Influencing Cryptocurrency Volatility

Similarly, volatility in digital assets as crypto refers to the degree of fluctuation or rapid and unpredictable changes in the price of cryptocurrencies, such as Bitcoin or Ethereum, over a particular period. However, there is much higher volatility in the overall crypto market than in traditional finance. As a result, major cryptocurrencies like Bitcoin and Ethereum have their own volatility indexes.

Meanwhile, the BVXS methodology upholds the same stringent standards of integrity, accuracy and reliability as all other CF Benchmarks pricing sources. The index remains demonstrably robust across a broad range of put and all contracts, with strikes far enough out of the money to cover most Bitcoin options objectives. While predicting the exact future price of cryptocurrencies is notoriously difficult, understanding volatility trends can provide clues about potential price movements. Through thorough research, risk management, and disciplined trading strategies, traders can navigate market swings and minimise potential losses. Technical analysis tools can assist in predicting and managing volatility, while diversification and portfolio management strategies can mitigate risk and maximise returns.

2 Training Parameters and Implementation of Our Proposed Model

An illustration of predicted and real values using AT-LSTM-MLP and benchmark models is shown in Fig. Simple methods based on statistical learning frameworks have been found to show good performance in many studies, e.g. Simple Moving Average (SMA) [2], Support Vector Regression (SVR) [11] and Random Forest (RF) [32]. The advantages of these statistical methods are that they are easy to implement, thus, the time complexity is significantly low and they tend to work well with different datasets.

crypto volatility index

It shows how much a security’s market price fluctuates around its average price. Generally, the higher the volatility, the riskier it is to invest in that asset. The answer to this question lies in the fact that cryptocurrencies are not backed by any intrinsic value, unlike traditional assets such as gold or diamonds.

Trade VIX Options Nearly 24 Hours a Day

Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. Please contact your financial adviser or professional before making an investment decision. To better illustrate the necessity of an index specific to CME Bitcoin options implied volatility, we now outline some key differences between how implied volatility typically manifests in traditional markets, and its trend in Bitcoin.

crypto volatility index

CFE lists nine standard (monthly) VIX futures contracts, and six weekly expirations in VIX futures. As such, there is a wide variety of potential calendar spreading opportunities depending on expectations for implied What is A Crm volatility. The index measures how dispersed (or variable) price movements in the underlying market (Bitcoin) are expected to be in 30 days’ time, based exclusively on CME Bitcoin Options orderbook data.

Spot Bitcoin ETFs Impact CME Crypto Derivatives Trading

Just as meteorologists use various tools and indicators to forecast storms or sunshine, investors use several metrics to gauge market volatility. To keep it simple, think of the volatility of cryptocurrency measurement as trying to predict the weather. These contracts allow the buyer the choice (but not the obligation) to buy or sell crypto at a predetermined price by or before a certain date. It’s calculated by determining the standard deviation of the logarithmic returns of a crypto for the specified timeframe. Meanwhile, the Chicago Board Options Exchange’s CBOE Volatility Index (VIX), a measure of expected price turbulence over four weeks, has significantly increased from an annualized 13% to 19%. The index is based on options tied to the S&P 500 index, which has experienced a 5.4% decline this month.

  • Please contact your financial adviser or professional before making an investment decision.
  • Technical analysis is also a popular approach used by traders to predict and manage volatility in the cryptocurrency market.
  • This is due to the lowest errors in the test set which were calculated using this metric.
  • Out of four methods, LSTM outperformed the others with an accuracy of approximately 83%.

Nothing contained herein shall constitute a solicitation, recommendation, endorsement, or offer by to invest, buy, or sell any coins, tokens, or other crypto assets. Returns on the buying and selling of crypto assets may be subject to tax, including capital gains tax, in your jurisdiction. Volatility is a prominent characteristic of the cryptocurrency market that — for now — does not appear to be ending soon. Instead of fearing volatility, understanding its causes and implications can help individuals make more informed decisions and potentially capitalise on the opportunities it presents.

Arbelos Markets is excited to see the growth of vol products like BVIV within the cryptocurrency asset class.” said Joshua Lim, co-founder of Arbelos Markets. Note that the BRR is the same rate against which all CME Bitcoin contracts, both options and futures, are settled. Historical volatility looks at how much the price of a crypto has varied in the past, typically over a period of 30, 60, or 90 days, and can help predict how much it might vary in the future. Historical volatility is a backward-looking measure that can be used to forecast how much a crypto is likely to fluctuate in the future.

crypto volatility index

Alternatively, VIX options may provide similar means to position a portfolio for potential increases or decreases in anticipated volatility. To be clear, there are, as yet, no instruments available for trading the BVXS directly. However, it should be clear from the foregoing that the design and implementation of the index enables its use as a settlement rate for financial instruments, such as volatility futures and options, and exchange traded products, like ETFs. For a simple heuristic of how implied volatility tends to manifest in traditional markets, we need only recognise the long-established relationship between the best-known volatility index, the CBOE Volatility Index (VIX) and the S&P 500 index.

Comparison of Volatility in Cryptocurrencies vs Traditional Markets

With this in mind, active traders, hedge fund managers, and institutional investors now require tools to track the volatility of the cryptocurrency market. Experienced traders will otherwise continue to use riskier strategies like long straddles and strangles. The BVIV Index is a real-time index published by Volmex that measures the constant, forward-looking 30-day expected volatility of BTC, derived from real-time crypto call and put options. The information contained within is for educational and informational purposes ONLY. This communication is not intended to persuade or incite you to buy or sell security or securities noted within.

What is volatility?

Today, we announce exactly that, CVI, a revolutionary and first of its kind decentralized volatility index for the crypto market so that traders can hedge themselves against volatility or lack thereof. Decentralized finance, or DeFi, one of the largest industries in the cryptocurrency space, surged to more than $150 billion in May 2021. Volatility trading is set to be the next big development for DeFi, ultimately giving traders one more way to profit from the cryptocurrency market’s volatile nature.