To most individuals, buying and selling in cryptocurrencies like bitcoin , boils right down to a easy query: Will costs go up or down?
However there’s one other dimension to buying and selling, which is volatility, a measure of how unstable costs may very well be no matter route. It’s already a massively well-liked commerce in inventory markets, and now CME needs to convey it to bitcoin.
The world’s main derivatives market introduced this week its plan to debut Bitcoin volatility futures on June 1, pending regulatory approval.
In contrast to conventional bitcoin futures, the brand new contracts won’t monitor the cryptocurrency’s value instantly. As a substitute, they may consult with the CME CF Bitcoin Volatility Index (BVX), which represents the market’s expectations for bitcoin volatility over the subsequent 4 weeks.
In easy phrases, merchants will be capable of wager on whether or not bitcoin markets are about to turn out to be extra chaotic or extra secure, with out essentially taking a view on whether or not costs themselves are heading increased or decrease.
“Crypto market participants are seeking regulated products that provide opportunities to gain digital assets exposure when markets move,” Giovanni Vicioso, world head of cryptocurrency merchandise at CME Group, stated within the press launch. “With our new Bitcoin volatility futures, traders will be able to invest or hedge against the future volatility of bitcoin, allowing them to access a critical new layer of risk management.
Note that offshore exchanges such as Deribit offer futures tied to their own bitcoin volatility indices, but these volatility markets remain relatively small and outside the scope of participation for most U.S. institutions. Moreover, the onshore crypto market still lacks a mature, CME-style bitcoin volatility futures product, so volatility exposure and hedging is primarily achieved through options and other synthetic structures.
CME’s latest offering will expand the exchange’s existing product suite, which includes bitcoin futures and options. Futures went live in December 2017 and have since become the preferred instrument for institutions seeking directional exposure and arbitrage opportunities. They have generated billions in trading volume and open interest, even surpassing offshore giant Binance at one point last year.
This trend of the institutionalization of bitcoin accelerated with the debut of 11 spot-listed bitcoin ETFs in January 2024, and the subsequent debut and rapid rise in popularity of options tied to BlackRock’s IBIT.
So, CME’s volatility futures seem like the next logical step, helping institutions manage risk beyond price direction into volatility itself, according to Sam Gaer, chief investment officer of Monarq Asset Management’s Directional Fund.
“IBIT choices open curiosity surpassing Deribit is a transparent sign of institutional demand, and vol futures are the pure subsequent step,” Gaer told CoinDesk in a Telegram message.
Gaer pointed to the way volatility trading evolved in traditional markets, noting that the CBOE Volatility Index, VIX, also known as the fear gauge, didn’t become a deeply liquid asset class on its own. Instead, liquidity accelerated only after exchange-traded funds and broader structured products built around VIX futures created a self-reinforcing ecosystem.
In other words, the growth in volatility trading was driven by derivatives linked to the spot VIX index. Once those products existed, volume attracted more volume, eventually turning volatility into a standalone market in its own right.
“VIX futures didn’t attain escape velocity till the ETF ecosystem developed across the futures (not the spot index, notably), and the identical flywheel dynamic applies right here. Quantity begets quantity. If CME’s product development and composition are clearly outlined and simply disseminated, this has the potential to be a watershed second for Bitcoin volatility as an asset class,” Gaer stated.
