CME Group, the world’s largest derivatives marketplace, is set to launch new Bitcoin Volatility Futures Contracts on June 1st, pending regulatory approval. In contrast to traditional Bitcoin (BTC) futures that simply track price, these instruments allow traders to bet directly on how much Bitcoin’s price will swing, regardless of whether it goes up or down.
Bitcoin volatility futures explained
These contracts will use the CME CF Bitcoin Volatility Index (BVX) to settle, a first-of-its-kind benchmark that measures 30-day forward-looking implied volatility. The BVX is created using the CME’s current order books for Bitcoin options, providing a transparent, responsive underlying for precision volatility trading in the market. Published every second from 7 a.m. to 4 p.m. central time (CT), the BVX captures market expectations of future price swings.
Some features of Bitcoin volatility futures contracts:
- A product regulated by the Commodity Futures Trading Commission (CFTC)
- Cash settlement based on the Bitcoin Volatility Real Time Index (BVX)
- Ability to hedge against volatility without taking any directional risks
- Speculation on future levels of volatility
“Crypto market participants are seeking regulated products that provide opportunities to gain digital assets exposure when markets move. 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.” – Giovanni Vicioso, Global Head of Cryptocurrency Products at CME Group.
What makes this unique
Traditional crypto derivatives (futures, options, and perpetual swaps) have inbuilt exposure to price movements (directional exposure). With Bitcoin volatility futures, there is no price direction and pure exposure to changes in price movement (volatility). If you believe that Bitcoin’s volatility/price movements will increase, you buy volatility futures; if you believe that they will decrease, you sell them.
This creates a complex financial instrument for institutional investors, portfolio managers, and options market makers who are currently using instruments for that purpose in traditional asset classes such as equities and commodities to hedge their exposure to volatility.
What this means for the crypto ecosystem
The launch of this product represents a major milestone in the development of Bitcoin as an asset class. Sui Chung, CEO of CF Benchmarks, stated that the CME CF Bitcoin Reference Rate enabled the development of regulated derivatives and opened the space to regulated exchange-traded funds (ETFs) and lending markets to flourish. He fully anticipates the same development with the new CFTC-regulated Bitcoin volatility contracts on the futures market.
David Schlageter from Morgan Stanley said the product will be “an important tool for market participants to manage portfolio risk by directly trading volatility better.”
