Last updated on January 1st, 2015 at 08:22 pm
The VIX is often called the “fear index” or the “fear gauge”, as it can be used to judge the market’s expectation of its trading price in the next 30 days.
BitMEX’s new index, which it calls the 30-Day Bitcoin Historic Volatility Index, will perform a similar role, allowing traders to determine the volatility of bitcoin. The index’s value is determined by taking trading platform Bitfinex’s XBT/USD price and then using the data to calculate bitcoin’s annualized volatility – its variation in value over the span of a year – over a 30-day period.
BitMEX plans to allow its users to trade the index on its website. Investors will be able to speculate on the BTC/USD value rising or falling by using a futures contract that gives them the option to buy or sell bitcoin at a set price in the future.
BitMEX CEO Arthur Hayes explained, “Say an event is coming up that you believe the price will either spike or drop, you can buy the contract and make a profit no matter what happens.”
“It will give a glimpse into where market participants see the volatility realising in the future,” he added.
According to BitMEX’s website, the company caters to investors who seek liquidity and the ability to hedge bitcoin exchange risk. BitMEX claims to be the only bitcoin derivatives exchange that provides an insurance service that protects traders against bankruptcy. The insurance is funded by a fee paid on open positions.
BitMEX also offers an API allowing traders to use its data with their own software tools. The company released an open-source market making bot in August 2014, which uses the API and places both buy and sell orders, permitting traders to make money when the spread is wide enough.
BitMEX, which stands for Bitcoin Mercantile Exchange, was founded in 2014 to respond to a lack of cryptocurrency derivative exchanges that were operated professionally. The exchange is based in Hong Kong. It is managed by a team including co-founders Arthur Hayes and Samuel Reed, and advisor Joseph Jeong. The team has over 40 years combined of experience with trading in the financial industry.