Fear index: how to determine trend on cryptomarket

Bitseven.com – Cryptoindustry is still very young. So there is not enough information that could provide at least decent index for market condition and investors mood. But it obviously keeps on steadily growing so there are more simple and convenient tools for data analysis appearing every day. One of the most important of such numbers is Bitcoin volatility index.

In mid-January, LedgerX announced the launch of a new information product, LedgerX Volatility Index (LXVX).

Juthica Chou, president and director of risk management at LedgerX stated that LXVX is, in fact, an analogue of the popular CBOE Volatility Index for traditional markets.

“It tells us expected certainty that the market is predicting,” she commented.

In other words, this index shows the level of investor fear. So traders can use it to determine risks and trends on the market.

“If you look basically since the start of the year, the LXVX is down about 20 percent so it’s down to about 68, and … this is still approximately three times the volatility of the stock market but it’s very telling in the bitcoin space because it shows that there is less of the fear and uncertainty than what existed [in] December.”

On the LedgerX site it says that LXVX is based on anticipated volatility: “For the first time, participants can get insights on how regulated US options evaluate Bitcoin’s future volatility”.

The index itself is based on data of BTC options from LedgerX. These options are issued in US dollars, and settlements between traders are made in Bitcoins with physical delivery. Therefore, LedgerX claims that this data is one of a kind, like its options.

Is there really a need?

Of course, any additional information about the state of the market can be useful for traders and analysts. But LXVX will be suitable only for option lovers, and not for valuing the trend as a whole.

Some experts believe that for the LedgerX clients themselves, the new index might become a “good trading instrument”.

However, the newly created index will not be traded yet, warned the company. But in the future, LedgerX will release a product based on LXVX.

Any alternatives?

Although the cryptomarket is young, there is already quite a lot of various information resources for it. The problem is that there is very little trust for them from market participants.

But even this does not stop different companies from creating their version of “reliable” and widespread index. One of these services is the alternative.me, which created the index of Fear and Greed on the BTC market.

According to its creators, the behavior of the cryptocurrency market is too emotional. On the usually market growth period people become greedy and start buying out cryptocurrency. When the rate falls, participants fall into sudden state of fear and start selling off assets in panic. So this exact index was created to save traders from an overly emotional and keen reaction to the market movement.

In particular, alternative.me claims that when the index shows “excessive fear,” this might mean that investors are too scared. And this is a good opportunity to buy an asset on the market.

But if the index shows “excessive greed”, then this may be a signal for a future correction.

Currently the index is at the mark of “fear.” Although last week it was on “excessive fear.”

What esle is measured?

In fact, there is the vast major of varieties of indexes being measured. And not all of them are aimed at defining investors mood. For example, there are indexes that simply track the rate of BTC.

Also, purpose of some indexes is so you can monitor the power consumption of mining. Such an indicator in particular is calculated by Digiconomist. According to its data, for today the annual consumption of electricity by miners is 46 terawatts. For comparison, countries such as Peru, Hong Kong and Iraq consume less energy in a year.

There are also special index funds that allow investors to invest money in crypto assets without any hassle. The principle of their operation is simple: the fund buys several assets and, depending on the rates fluctuations, makes a profitability estimation. For example, Crypto20 crypto index fund holds 20 cryptocurrencies in its portfolio in different proportions. For the most part fund had bought Ethereum (11.9% of the total portfolio), Ripple (9.6%) and Bitcoin (9.4%).

During the bull market, there was a high demand for index funds so their number grew significantly. But when the trend had changed to a prolonged decline, their popularity quickly faded away. And this is not strange at all, because investors have lost their money on that.

A need for more indexes?

Awareness is incredibly important in making any kind of decision. It is especially true for the crypto market, where traders and analysts are often forced to play blindly. So the competition to LXVX index is going to be obviously a good thing. The new option could simply work better, some traders might prefer one over the other and the ability to compare will be a very helpful addition. The more the merrier as the saying goes.