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- CME Group is launching Bitcoin volatility futures on October 5, pending a green light from regulators.
- The new tool lets traders bet on or protect against market swings without needing to own the actual coin.
- The contracts track the BVX Index, which measures expected price turbulence over a 30-day window.
For a long time, if you wanted to make money in the crypto world, you mostly had to hope the price went up. But the market is changing. CME Group, a giant in the world of financial trading, has decided to give investors a way to trade the “mood” of the market rather than just the price of Bitcoin itself.
On June 1st, Bitcoin volatility futures will go live. However, they differ significantly from conventional futures contracts. Whereas a regular future contract measures how much the price of Bitcoin is at a certain level, whether it be 60,000 or 70,000 dollars, Bitcoin volatility futures measure how much the price fluctuates.
According to Giovanni Vicioso, CME Group’s head of crypto products, the financial industry is currently craving an option to manage volatility. To put it simply, if traders panic and sell off cryptocurrencies—driving up volatility—these futures allow you to profit from the chaos.
The CME High Tech Measuring Stick
The key ingredient that has enabled the launch of this new financial offering is the CME CF Bitcoin Volatility Index, better known by its shorthand, BVX. The way to think about the BVX is as a speedometer for Bitcoin. Just as the speedometer does not indicate the direction of your car, it indicates how fast the needle is moving.
The index calculates market expectations by analyzing real-time order book data 30 days into the future. Its incredible processing speed makes it unique. For banks and financial professionals, this transparency cannot be understated.
As David Schlageter of Morgan Stanley states, having the ability to trade the volatility of this cryptocurrency index is a major step towards managing risks. It transforms Bitcoin trading from a wild west speculation to a more professional venture.
Standardizing the Bitcoin Fear Factor
Traditionally, Bitcoin was perceived as a rather high-risk investment choice by many conventional investors. Nevertheless, solutions such as this one are closing the gap. The CEO of CF Benchmarks, Sui Chung, argues that, similar to the process of agreeing upon a standardized value of Bitcoin years ago, the market is now coming up with a “standard of fear” for it.
With the introduction of their new regulated product monitored by the CFTC, CME Group has created a relatively safe environment for large institutions and individual investors alike. Not only does this offer more opportunities to earn some additional money, but it also adds an important element of stability to the whole process.
The ability to correctly forecast and hedge one’s risk is crucial for any market participant. With the digital assets market growing by leaps and bounds, volatility futures may soon become a core element of any serious trader’s strategy.
Also Read: Saylor Signals Bitcoin Buying Return After Q1 Earnings Call
