The Crypto Volatility Index presenting a new newsletter covering all about crypto volatility trends, trading and market analytics.
Application soon to be available via cvi.finance
Disclaimer: This is for educational purposes only — Nothing here is intended for trading advice or otherwise.
Bull market remains strong into August
The price of Bitcoin hovered around the $41,000 range on August 1, demonstrating the continuation of bullish sentiment as the new month began. According to market data from CoinDesk, Bitcoin prices have been trading mostly between $30,000 and $42,000 since late May. Yet while the digital asset has only fallen slightly over the past few days, declining as little as 5.6%, Bitcoin has still underperformed other major cryptocurrencies. For example, Ether rose about 5% over the same time period.
Overall, we are still in a bull market, which is notable given the latest regulatory crackdowns. For example, buyers remain active despite regulations in China that continue to apply pressure on crypto trading due to financial risk concerns. Further, the U.S. Senate is advancing a $1 trillion infrastructure bill, which includes a provision involving crypto taxes.
More specifically, the proposed language in the provision would obligate crypto “brokers” to provide customer data to the IRS. Further, it expanded the definition of a broker to any entity “responsible for regularly providing any service effectuating transfers of digital assets on behalf of another person.”
Some experts have voiced concerns that this language is overly vague and could cast a very wide net that affects a wide range of industry participants. If U.S. regulations become more stringent, it could have a bearish effect on the markets, contributing to a pullback.
Fortunately, the cryptocurrency ecosystem continues to thrive. Recent developments such as the leading cryptocurrency exchange FTX raising an $18 billion valuation demonstrate increased investor interest. The launch of EIP-1559 will also reduce the supply of Ether, and many expect that this development will cause the digital asset’s price to spike.
Crypto volatility results in liquidity for traders
Another piece of good news is that traders are benefiting from the crypto market’s volatile nature. One major reason they can profit from these price fluctuations is COTI’s Crypto Volatility Index (CVI), which is essentially a decentralized version of the Tradfi implied volatility index, commonly referred to as the “Market Fear Index.” In fact, Professor Dan Galai, the creator of the VIX, helped develop the CVI.
In a nutshell, the CVI works to balance an inherently unbalanced market. The protocol consists of an index that tracks the 30-day implied volatility of Bitcoin and Ethereum. A network of decentralized Chainlink oracles calculate the index off-chain. The result is then aggregated on-chain from different sources.
The index provides ranges between zero and 200, which is produced based on a Black-Scholes option pricing model. This calculates the implied volatility of cryptocurrency option prices and analyzes the market’s expectation of future volatility.
At the time of this writing, the index had a value of 95.56. However, this particular measure fell to 50 in 2019 and climbed above 160 in early 2020, according to historical data.
Introducing crypto volatility tokens
While there are a number of benefits traders gain from using the CVI, the ability to trade volatility tokens on decentralized exchanges, or DEXs (Uniswap, SushiSwap, QuickSwap, etc.) is the latest functionality from COTI. It’s important to note that price volatility is essential for DeFi, both as a trading instrument and as a hedging tool against impermanent loss.
COTI will first launch ETHVOL, a volatility token that can be traded on any Ethereum-back DEXs. This will be followed by the CVIVOL token, which can be traded on any Polygon-supported DEXs.
The AMM pool of the CVI platform also now allows a single liquidity pool to support leveraged tokens, including ETHVOL-X2, ETHVOL-X3, CVIVOL-X2, and CVIVOL-X3.
We believe volatility trading is the next major advancement in DeFi.
CVI version 2.0 launch
Another major development from COTI is the launch of the CVI 2.0, which is now live. CVI V2 offers a number of improvements and new features including a USDC platform, a revised UX, margin trading, volatility tokens on DEXs, rebalancing of lockups/rewards and more.
Specifically speaking, the USDC platform allows for open positions, allowing traders to stake their CVI USDC liquidity tokens through CVI. Margin trading will also be available via the USDC platform. This makes it possible for traders to leverage their USDC positions on the Polygon Network for X2, allowing for access to greater capital.
Volatility tokens are also a notable feature that add tremendous value to the overall DeFi ecosystem. Volatility tokens ensure that liquidity providers on DEXs can protect themselves from impermanent loss on liquidity pools. The first volatility token we launched was ETHVOL, which can be traded on any Ethereum based DEXs. CVIVOL is the next volatility token we are launching, which will be traded on any Polygon supported DEXs.
CVI V2 also has an entirely new design, with an easy to understand UI/UX that makes trading on CVI much more user friendly.
You can read more about all the new features of CVI V2 here.
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