Deribit, a popular crypto derivatives exchange, is set to launch Bitcoin volatility futures. Investors can now have direct access to measure and trade the market’s volatility. Dubbed as BTC DVOL futures, it is built on the Deribit Bitcoin Volatility Index, which measures the implied volatility of the leading cryptocurrency. Deribit’s volatility gauge offers a 30-day outlook on investors’ expectations for annualized volatility. Like other volatility products, BTC DVOL can potentially help traders with risk management, portfolio hedging, or market speculation.
In traditional finance, Volatility-as-an-asset is widely traded, with the most popular product being the Chicago Board Options Exchange Volatility Index, also known as VIX. The VIX fluctuates on a scale of 1–100, with 20 representing the historical average. Readings below 20 signal lower implied volatility than the historical mean. Readings above 20 are usually associated with more turbulent financial conditions, while anything above 30 signals significant market volatility, usually due to uncertainty, risk, or investor fear. VIX measures the volatility of S&P 500 index options, leading indicators of the U.S. stock market.
Bitcoin and the broader crypto markets have showcased extreme volatility over the past year. The period known as crypto winter is usually associated with deep corrections in digital asset prices following an over-extended bullish phase. Traditional markets have also battled extreme volatility over the past twelve months, marked by major fluctuations in the S&P 500 index and broader stock market.
Crypto investment products recently experienced record outflows following the collapse of Silicon Valley Bank and Signature Bank. However, regulatory clarity on investor deposits has helped Bitcoin stage a massive relief rally, with its price crossing $27,000 on March 17 for the first time in nine months.
Deribit’s launch of BTC DVOL futures comes as a boon to investors seeking to manage their risks in the highly volatile crypto market. The emergence of volatility futures highlights the maturity of the crypto market, providing greater transparency, liquidity, and risk management capabilities.
Investors in crypto markets have long been plagued by the lack of established risk management tools, leading to greater market volatility, price instability, and limited institutional adoption. The absence of a volatility index for digital assets meant that investors had no easy way of gauging the market’s appetite for risk and uncertainty, leading to a lack of clarity and transparency.
However, the recent launch of BTC DVOL futures by Deribit has been hailed as a major step forward in the development of the crypto market’s infrastructure. With Deribit’s volatility gauge providing a measure of investors’ expectations for annualized volatility, traders can now manage their portfolios more effectively and enter or exit positions more efficiently.
The launch of BTC DVOL futures has also brought the crypto market one step closer to greater institutional adoption, with funds and asset managers requiring the presence of such products to manage their risks adequately.
In conclusion, Deribit’s launch of BTC DVOL futures is a significant development for the crypto market, highlighting its growing importance as an asset class. Investors can now have direct access to measure and trade market volatility, providing greater transparency, liquidity, and risk management capabilities. The emergence of volatility futures is a crucial step forward in the development of the crypto market’s infrastructure, enabling greater institutional adoption and achieving long-term sustainability.
