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The crypto version of the “fear index” can now be used to see the future

October 30, 2020

He Crypto Volatility Index or CVXis now available as beta test and proof of concept. The index maps the implied volatility of crypto options similar to the VIX index used in the stock markets.

The VIX is commonly known as the “Stock Exchange Fear Index”.as it often comes to a head in anticipation of greater downward movements.

The CVX works on a very similar mechanism. It tracks the implied volatility of a basket of crypto options, mainly for Bitcoin (BTC) and Ethereum (ETH).

The crypto version of the “fear index” can now be used to see the future
The crypto version of the “fear index” can now be used to see the future

Options are derivatives that give buyers the option, but not the obligation, to buy or sell an asset at a certain strike price and at a certain point in the future.. To do this, they pay the sellers a premium, which generally depends on factors such as the remaining time to maturity and general expectations of future volatility known as implied volatility.

Implied volatility refers to how much traders believe that a given asset will move up or down.and it differs from realized volatility, i.e. how much the asset has actually moved. For this reason, can be viewed as a leading indicator of large price movements, although options traders may not always be accurate about their predictions.

The volatility index aggregates these future projections across various option premiums to provide a general view of the market.

The CLC could also be negotiated Investors can hedge their bets by betting on rising or falling volatility. The team stated that it works very similarly to the VIX and calculates the implied volatility of option premiums using the Black-Scholes formula.

CVX is a DeFi product with its own governance token of the same name. The protocol will initially support volatility trading with ETH and USDT, while CVX token holders will be able to make some decisions about the future of the platform.

I do, howeverThe current beta version is based on centralized option platforms such as Deribit. In the future, it is expected that DeFi protocols for trading options will also be included.

The index currently holds data for a little over a month ago, but highlights moments of heightened fear, such as OKEx’s withdrawal issues, which triggered a CLC all-time high around October 21.

Source: CVX Finance

In general, The cryptocurrency market appears to be in great fear in late Octoberalthough it is difficult to assess the importance of these values ​​without a lengthy history.

When the index matures Seeing what the market is predicting for future price movements can become an important staple in a trader’s arsenal.

However, crypto derivatives platforms are still a little underdeveloped, and the implied volatility numbers you see now may not always make sense when checked by experienced traders.