LedgerX thinks that cryptocurrency operators should be able to evaluate the volatility of bitcoins. And, taking a leaf from the stock market book, the derivatives trading platform has built an index to track this benchmark.
The company announced Monday that it was launching the LedgerX Volatility Index (LXVX), which tracks the expected volatility for bitcoins. The company will draw data for the index from its regulated bitcoin options, which various institutions have negotiated in the last year.
Juthica Chou, president and chief risk officer of LedgerX, told CoinDesk that the LXVX is similar to the Cboe Volatility Index (VIX), a popular measure of the expected volatility of the stock market.
"[A volatility index] tells you the certainty that the market is in anticipation … This is what it tells you compared to any market, "he explained.
Or, to put it another way, the LXVX can be described as "a bitcoin fear index", just as the VIX is referred to as the stock market fear index, he said.
Chou, who previously worked at Goldman Sachs as a volatility trader, said that VIX was an important landmark, and its utility is why LedgerX decided to build one for bitcoins.
It can allow traders and investors to monitor risks while managing their businesses, he said.
For example, he cited bitcoin volatility towards the end of 2018 compared to the beginning of this year, saying:
"If you look fundamentally from the start of the year, the LXVX is down about 20 percent then it drops to around 68, and … this is still about three times the volatility of the stock market but it is very significant in the bitcoin space because it shows that there is less fear and uncertainty than what existed [in] December."
At the moment, the index is not a negotiable product, even if the construction of a product of this type is a goal later. LedgerX's institutional customers have already been able to monitor the benchmark for at least a few months, and is now publicly available through the LedgerX website.
Flourishing in winter
Separately, LedgerX has announced that it has sold over $ 500 million in bitcoin derivatives since its inception in October 2017, through over 50,000 contracts on "a wide range of strikes," Chou said, referring to the price at which an option can be exercised.
While other cryptographic start-ups have suffered from the prolonged crypto-bear market, it has actually been more advantageous for LedgerX, as it leads to increased trading activity.
"We saw, for example, a lot of put options trading in December and at the end of November, while the broader market was running out," he said. "Now that we recover, we are seeing many more call options."
Juthica Chou, LedgerX image through CoinDesk consensus files