The first-ever over-the-counter (OTC) trade of BitVol, the options-fuelled volatility index for bitcoin developed by T3 Index, the creators of the SPIKES index, was executed Wednesday by LedgerPrime, a quantitative digital asset investment firm owned by Ledger Holdings (the parent company of LedgerX). The counterparty for the trade was a cryptocurrency asset manager that was not named.
Simon Ho, CEO of T3 Index, said in a press release that the trade consisted of a March expiry 1X2 BitVol call spread, in which the counterparty client bought the spread at even premiums (or “zero cost”).
“This is a milestone for crypto investors, who will now be able to trade Bitcoin volatility as a distinct asset class,” Ho said.
Although there are other cryptocurrency volatility indices, such as the BitMEX Daily Historical Bitcoin Volatility Index (or .BVOL24H), the BitVol’s underlying methodology is similar to that of Cboe’s VIX index. BitVol uses strike prices from tradable bitcoin options on various exchanges to determine the expected 30-day implied volatility of bitcoin, the world’s biggest digital asset by market cap. As of Wednesday’s close, bitcoin’s price was more than $54,000 per coin, continuing an upward trend that began in October.
BitVol also uses variance swap methodology and “price dragging,” a mathematical model T3 has used to create numerous indices, including the SPIKES, which removes out-of-the-money options or other irregularities that could negatively impact the accuracy of the index value.
The BitVol was launched in July 2020, eight months to the day before its first transaction was executed. “It took longer than we thought as other projects took priority,” Ho said in an email.
The BitVol Volatility Index is one of two digital asset volatility indices created by T3 Index, including the EthVol Ethereum Volatility Index – which measures the expected 30-day implied volatility of Ether (ETH), the native digital asset of Ethereum. T3 also created the T3 Crypto-X Power (Crypto-XP) Index, which is built to represent the value of the top 10 cryptocurrencies by market cap, rebalanced monthly by their respective market capitalization ranks.