Bitfinex Users Can Now Bet On The Implied Volatility Of Bitcoin And Ether

Bitfinex, the cryptocurrency exchange, has introduced perpetual futures linked to the volatility indices of Bitcoin (BTC) and Ether (ETH), enabling traders to speculate on the anticipated price fluctuations of these primary cryptocurrencies.

These futures are structured around the Bitcoin Implied Volatility Index (BVIV) and Ether Implied Volatility Index (EVIV), developed by the decentralized derivatives platform, Volmex. Both indices, calculated from the real-time call and put options of Bitcoin and Ether, forecast the expected price movements within a 30-day period.

According to Volmex, these indices serve a similar purpose to the VIX index on Wall Street, which measures market volatility based on the options market of the S&P 500 index.

How Traders Can Bet On The Implied Volatility

Beginning on April 3, Bitfinex will introduce the trading of Bitcoin and Ether volatility futures, listed under the symbols BVIVF0:USTFO and EVIVFO:USDTFO, as announced in a press release.

These contracts will be denominated, margined, and settled in tether (USDT), the leading dollar-pegged stablecoin by market size.

Futures contracts like these, known as perpetuals, do not have an expiration date and employ a funding rate mechanism to align the prices of the perpetual contracts with the price of the underlying asset or index.

With the introduction of volatility futures, Bitfinex offers its users the opportunity to speculate on the speed of expected price movements in Bitcoin and Ether, whether bullish or bearish. A position in long volatility implies a wager on significant price movements in either direction for the asset.

These volatility futures are designed to assist traders in managing the risks associated with binary events such as critical economic data releases in the U.S., decisions on interest rates by the Federal Reserve, and specific events within the crypto market that could lead to increased market volatility.

Additionally, they provide an avenue for retail investors, who may not have the means or knowledge to engage in complex options strategies like straddles and strangles, to capitalize on variations in implied volatility.

Traders Will Be Able To Use Leverage Up To 20%

Furthermore, Bitfinex Derivatives presents these contracts with the possibility of leveraging up to 20 times, which could amplify gains (or losses) for traders who are adept and willing to undertake the associated risks.

It’s observed that volatility indexes usually move inversely to the price of the asset they track. Thus, a substantial decline in the prices of Bitcoin or Ether often leads to an uptick in the volatility index, indicating a greater and broader market anxiety.

On the other hand, when the prices are stable, the volatility index tends to show reduced fluctuations. Additionally, volatility indexes may see sudden increases in response to unforeseen events that have a significant effect on the market.

Bitfinex Now Has Over 60 Perpetual Futures Contracts Available

Jag Kooner, the derivatives chief at Bitfinex, highlighted that perpetual futures are the prime trading format in the cryptocurrency sector, distinguishing themselves from other contracts that operate on outdated frameworks.

Bitfinex has expanded its offering to include these new contracts, adding to its portfolio of over 60 perpetual futures that span not just cryptocurrencies but also commodities such as precious metals and oil, in addition to foreign exchange and stocks. Kooner expressed that these additions will enable the incorporation of implied volatility as a new category of asset.

The introduction of these innovative trading instruments comes as a direct response to cryptocurrencies reaching unprecedented price peaks. Kooner observed, “As crypto prices hit new all-time highs, the potential for greater volatility and substantial market corrections has made these indices more relevant than ever.”

This development follows a period of intense fluctuation in the cryptocurrency market, with the Crypto Volatility Index (CVI) – a measure of anticipated volatility over the next 30 days that acts as the crypto market’s gauge of investor anxiety – reaching a record 85 points on March 11.

This peak in the CVI preceded Bitcoin’s surge to record levels above $73,000 on March 13. Currently, the CVI stands at approximately 76, indicating ongoing high implied volatility in the crypto market.