According to its creators, the BVIX index is one of the first of its kind for digital goods.
The index uses standard market indicators to calculate its value.
Other indices of this type allow the creation of ETFs and similar products
On December 3, the University of Sussex and CryptoCompare announced the launch of the Bitcoin Volatility Index (BVIX).
The index provides a projection of the level of volatility expected by “ sophisticated Bitcoin options traders ”.
Although traders use volatility indices similar to BVIX in their work, it can prove to be a useful tool for others in the industry.
The Bitcoin standard for Exchanges products
Volatility indices are the basis for creating professional investment products such as Exchange Traded Funds (ETFs) and Exchange Traded Notes (ETNs).
These products offer professional traders another route into the cryptocurrency market without having to purchase coins themselves.
CryptoCompare, a company specializing in digital asset data, streams BVIX in real time.
The screening implements the results of research conducted by Professor Carol Alexander and her team at the University of Sussex. The index was published in the Journal of Alternative Investments .
Does it work ?
In the white paper describing the BVIX, Dr Alexander points out an important use of the index. The latter shows that Bitcoin’s volatility peaked in mid-March 2020, when the market took in the reality of the COVID-19 pandemic in the United States.
BVIX, says Dr Alexander, shows that “Bitcoins have lost all appearance of safe haven once and for all”.
Source: Journal of Alternative Investments
Additionally, the BVIX shows the correlation between sentiment and price in October and November 2020.
Dr Alexander points out that lower BVIX values, despite a higher price, indicate that options traders expect less volatility in the Bitcoin market in the near future.