Pairs traders looking for an edge might want to focus on a little-known gauge related to Bitcoin and the S&P 500.
This gauge is the gap between Volmex’s BVIV – the 30-day implied volatility index for BTC – and its S&P 500 counterpart, the VIX index. The gap has started to widen again, suggesting that BTC volatility is likely to outpace stock market risk.
Implied volatility is influenced by the demand for options or hedging instruments.
“When the BVIV-VIX spread widens, it generally signals that markets expect higher volatility from cryptocurrencies than stocks,” Cole Kennelly, founder of Volmex, told CoinDesk. “Crypto options markets adapt more quickly to liquidity and macro catalysts, so implied volatility often outpaces traditional markets.”
The gap recently broke a multi-month range between 20,000 and 32,000 and broke through the downtrend from the March 2024 high. These trends suggest that BTC will likely experience more volatility than the S&P 500 in the coming days.
The prospects of BTC volatility becoming relatively richer compared to the S&P 500 could prompt pairs traders to consider opposing BTC and S&P 500 volatility bets.
“When the BVIV-VIX spread widens significantly, some traders view it as a relative value setup: the implied volatility of cryptocurrencies has depreciated or enriched relative to the volatility of stocks. This type of view is typically expressed through multi-asset volatility trades across multiple assets rather than a simple directional position,” Kennelly explained.
Volatility trading, a capital-intensive strategy, involves betting on price movements rather than their direction, usually through non-directional options or volatility futures.
It goes without saying that these strategies are risky, like other games, and require constant monitoring of positions and significant capital, making them suitable for institutions.
