LedgerX Announces Launch of Bitcoin Volatility Index
Called the LedgerX Volatility Index (LXVX), the index will measure, essentially, the degree to which market participants have been affected by FUD (that is, fear, uncertainty, and doubt):
“The LXVX incorporates the level of fear and uncertainty in the bitcoin market, and thus can be thought of the “bitcoin fear index,” in the same way the VIX [volatility index] is commonly referred to as a stock market fear index by market commentators.”
In order to calculate the index, LedgerX will draw data from its regulated bitcoin options, which institutional clients have been trading since October 2017.
In a quote to Coindesk, LedgerX’s president and chief risk officer (and former Goldman Sachs volatility trader) Juthica Chou explained:
“[A volatility index] tells you the expected certainty that the market is forecasting … That’s what it tells you with respect to any market … 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.”
Essentially, the LXVX can be a useful tool for traders to keep an eye on how much risk they are exposed to.
Notably, LedgerX announced it has cleared more than $500 million in bitcoin derivatives since it began offering them about 15 months ago. While the crypto bear market — or winter, as it is colloquially referred to — has been brutal for most investors, it has had perhaps the opposite effect on LedgerX, due to increased trading activity in the speculative derivatives market.