Crypto 'fear index' can now be used to peek into the future

Published on by Cointele | Published on

The Crypto Volatility Index, or CVX, is now live as a beta test and proof of concept.

The index tracks the implied volatility of crypto options in a similar fashion to the VIX index used in stock markets.

It tracks the implied volatility of a basket of crypto options, primarily for Bitcoin and Ethereum.

Options are a derivative product that give buyers the option, but not the obligation, to purchase or sell an asset at a certain strike price and at a certain date in the future.

To be able to do this, they pay sellers a premium, which generally depends on factors such as time until expiry and the overall expectations of future volatility, called implied volatility.

Implied volatility refers to how much traders think a certain asset will move either higher or lower, and it differs from realized volatility, which is how much the asset actually moved.

The volatility index aggregates these predictions of the future across a variety of option premiums to provide a generalized overview of the market.

The protocol will initially support volatility trading with ETH and USDT, while the CVX token holders will be able to make some of the decisions about the future of the platform.

As the index matures, it may become an important staple in a trader's arsenal to see what the market is predicting for future price action.

Crypto derivatives platforms remain somewhat underdeveloped though, and implied volatility figures seen now may not always make sense when analyzed by veteran traders.