How T3 Index’s “VIX-Like” Index for Bitcoin Works

simon ho, t3 index, bitvol, volatility, SPIKES,
Matt Raebel

Matt Raebel


Correction: LedgerX is a New York-based company. It is not based in Chicago.

T3 Index, the creators of the SPIKES Volatility Index have created a new volatility index, which uses bitcoin options to track the volatility of the world’s first and most widely-traded cryptocurrency, bitcoin (BTC).

The index, called the BitVol Volatility Index (“BitVol”) uses strike prices from tradable bitcoin options on a popular cryptocurrency derivatives exchange to determine the expected 30-day implied volatility of bitcoin, the world’s first and biggest digital asset by market cap. Simon Ho, the CEO of T3, said via email that BitVol currently sources its data directly from Deribit, a Panama-based cryptocurrency derivatives exchange that produces the lion’s share of bitcoin options trading volume globally (at time of writing). Ho also said that T3 Index is currently working on building out an aggregated data feed from multiple digital asset exchanges, but that data from institutional platforms like the CME’s bitcoin options and Bakkt will “likely not be used at this stage.” Ho declined to comment on this topic further.

To create the BitVol, T3 applied methods previously used while developing the SPIKES Index. The BitVol Index uses variance swap methodology to calculate the index’s value – the same mathematical formula that the SPIKES Index uses to determine its value. 

The BitVol also employs T3’s signature “price-dragging” technique, another mathematical model T3 used to create the SPIKES and other indices, which removes out-of-the-money options or other irregularities that could negatively impact the accuracy of the index value. When asked if T3 found it difficult to apply the same principles that make the SPIKES function to calculating the volatility of bitcoin, Simon Ho said that the price dragging methods fit “like a glove” when applied to calculating bitcoin’s expected implied volatility. 

LedgerX, a Chicago-based regulated swap execution facility (SEF) and clearing house that lists physically-settled bitcoin swaps and options, has exclusive rights to commercialization of the BitVol for the time being. LedgerX previously launched a bitcoin volatility index of their own called the LedgerX Volatility Index (LXVX) in January 2019. In a press release announcing the launch of BitVol, Zach Dexter, the CEO of LedgerX, said, “We are excited to be the exclusive US partner for commercializing BitVol. T3 has a demonstrated track record of commercializing indices and we believe BitVol will create new opportunities for our customers.” LedgerX did not respond to JLN’s inquiries at the time of publication.

Ho also said that BitVol was developed to eventually be usable in sophisticated trading strategies involving Cboe Global Markets’ VIX products by “harmonizing” the expiration time between VIX and BitVol. He said that pending regulatory approval, a goal of his is to eventually list futures and options products on the BitVol, and to line up the expiration dates of these derivatives as close to those of Cboe’s VIX as possible. “For example,” he said, “someone who sells a BV [BitVol] futures contract may choose to buy VIX futures against it as a hedge.”

Pictured is Simon Ho. 


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