Accessing wealth-creation opportunities through market volatility

Cryptocurrencies are inherently and, as posterity would indicate, irrevocably volatile; writing for Forbes in 2013, journalist Timothy Lee penned a polemic about the perils of Bitcoin volatility, however sought to reassure readers that this was largely due to its relative infancy, and the fact that it was, at the time of writing, a “startup currency”.

Almost a decade on, and various dalliances with a >$1trillion market cap later, one thing can be held as an immutable truth about Bitcoin; its volatility is here to stay, and can’t be attributed solely to its longevity (or lack thereof), in the wishful hope of its dissipation over time.

Whilst for many (especially more seasoned) traders, volatility is the primary incentive for them to participate in the financial markets, there are those for whom the volatility inherent to Bitcoin and the wider crypto market serves as an obstacle to adoption; it can lead to a reticence and a reluctance to enter the digital asset investment space, with risk averse traders seeking the safety and security of more stable, stationary assets.

Volatility; A Sheep in Wolf’s Clothing

However, as counter-intuitive as it may seem, disregarding crypto markets on account of their volatility is often, to amend an age-old adage, akin to throwing the bathwater out with the baby.

Consider the inverse scenario, and the landscape we would find ourselves in were there to be a scarcity of volatility, and therefore price movements, within the crypto markets, as opposed to an abundance: without substantial movements in price, traders would find themselves without opportunities to achieve substantial profits.

The opportunities presented by market volatility are so well established, and experienced traders have been savvy to them for so long, that Investodia have even compiled a list of the most widely used and well-known trading strategies which investors employ to capitalise on market fluctuations.

Notable amongst those strategies outlined by Investopedia is the one entitled “Using Volatility Index (VIX) Options and Futures”; it stands out amongst the others in that it allows traders to profit not from the fluctuations in price of an asset, but from the very fact that the prices will fluctuate at all. In Investopedia’s own words, “VIX options and futures allow traders to profit from the change in volatility regardless of the underlying price direction.”

The implications of this are profound, and particularly pertinent to the crypto markets; trading the Bitcoin VIX, for example, means that investors don’t need to speculate on which way the price of Bitcoin will move – an endeavor reminiscent of Warren Buffett’s infamous “Monkeys throwing darts” axiom. Rather, all they will need to do is take a view on whether there will be volatility in the markets at all – a far more probable proposition.

Opportunity from Chaos

As it stands today, the only trading platform to offer investors access to the Bitcoin VIX is GlobeExchange; a crypto derivatives exchange, offering an array of perpetual markets where traders can leverage their capital up to 100X.

The methodology behind Globe’s BTC-VIX is derived from the Chicago Board Options Exchange White Paper, which relies on gathering bid and ask quotes for options expiring between 23 and 37 days from the current point in time and reversing out the volatility implied by the options prices with a structured weighting and blending methodology to settle on an 30-day forward looking implied volatility.

Every individual investor or trader will have their own appetite for risk, but greater availability of data, information, and educational resources means that more well-informed decisions can be made when looking to access the opportunities presented by unpredictable and constantly-fluctuating markets.

For example, in late 2020 Globe Research also produced a research report showing Bitcoin implied volatility on a 5 minute time horizon is modestly predictable from price, volatility momentum and alternative data including sentiment and engagement. In addition, it’s worth highlighting at this point that the implied volatility of Globe’s VIX futures market is considerably greater than that of the S&P 500, thereby providing even greater trading opportunities.

Whilst a more up-to-date report, factoring in recent volatility events, may alter the conclusions and inductions of this research, the fact remains demonstrably true that institutions are committed to educating their users, and providing traders with the resources needed to demystify markets and access previously unobtainable opportunities.

Through this, and through the access they provide to exotic and novel markets such as the BTC-VIX, exchanges such as Globe are empowering a new generation of investors to achieve wealth-creation opportunities not just from speculating on future asset prices, but from the inherently volatile nature of cryptocurrency markets, regardless of the direction in which prices happen to be moving on a given day.