For most people, trading cryptocurrencies like bitcoin comes down to a simple question: will prices go up or down?
But there is another dimension to trading, and that is volatility, a measure of how volatile prices are in any direction. This is already an extremely popular transaction on the stock markets, and CME now wants to expand it to Bitcoin.
The world’s leading derivatives market this week announced plans to launch Bitcoin volatility futures on June 1, pending regulatory approval.
Unlike traditional Bitcoin futures, the new contracts will not directly track the price of the cryptocurrency. Instead, they will refer to the CME CF Bitcoin Volatility Index (BVX), which represents the market’s expectations for Bitcoin volatility over the next 4 weeks.
Simply put, traders will be able to bet on whether Bitcoin markets are about to become more chaotic or more stable, without necessarily considering whether the prices themselves are going up or down.
“Cryptocurrency market participants are seeking regulated products that provide opportunities for exposure to digital assets when markets evolve,” Giovanni Vicioso, global head of cryptocurrency products at CME Group, said in the press release. “With our new Bitcoin Volatility Futures contracts, traders will be able to invest in or hedge against future Bitcoin volatility, taking them to a critical new level of risk management.
Note that offshore exchanges such as Deribit offer futures contracts linked to their own Bitcoin volatility indices, but these volatility markets remain relatively small and outside the scope of participation of most US institutions. Additionally, the domestic crypto market still lacks a mature CME-style Bitcoin volatility futures product, so volatility exposure and hedging is primarily accomplished through options and other synthetic structures.
CME’s latest offering will expand the exchange’s existing product suite, which includes Bitcoin futures and options. Futures contracts were launched in December 2017 and have since become the preferred instrument for institutions seeking directional exposure and arbitrage opportunities. They have generated billions of dollars in trading volume and open interest, even surpassing offshore giant Binance at one point last year.
This trend toward Bitcoin institutionalization accelerated with the launch of 11 spot-listed Bitcoin ETFs in January 2024, followed by the launch and rapid rise in popularity of BlackRock’s IBIT-linked options.
So CME Volatility Futures appears to be the logical next step, helping institutions manage risk beyond price direction to volatility itself, according to Sam Gaer, chief investment officer of Monarq Asset Management’s Directional Fund.
“IBIT options open interest surpassing Deribit is a clear signal of institutional demand, and vol futures are the natural next step,” Gaer told CoinDesk in a Telegram message.
Gaer highlighted the evolution of volatility trading in traditional markets, noting that the CBOE Volatility Index, VIX, also known as the Fear Gauge, has not become a highly liquid asset class on its own. Instead, liquidity only accelerated after exchange-traded funds and broader structured products built around VIX futures created a self-reinforcing ecosystem.
In other words, the growth of volatility trading was driven by derivatives linked to the VIX spot index. Once these products existed, volume attracted more volume, eventually turning volatility into a standalone market in its own right.
“VIX futures did not reach escape velocity until the ETF ecosystem developed around futures (and not the spot index, notably), and the same flywheel dynamic applies here. Volume breeds volume. If the construction and composition of CME’s products are clearly defined and easily disseminated, this could potentially be a watershed moment for the volatility of Bitcoin as an asset class,” Gaer said.
