Pairs traders looking for an edge may want to focus on lesser-known indicators related to Bitcoin and the S&P 500 Index.
The indicator is the spread between Volmex’s BVIV (BTC’s 30-day implied volatility index) and its counterpart, the S&P 500 VIX index. Spreads are starting to widen again, indicating that Bitcoin volatility is expected to outweigh equity market risks.
Implied volatility is affected by demand for options or hedging instruments.
“When the BVIV-VIX spread widens, it’s usually a sign that the market expects cryptocurrencies to be more volatile than equities,” Volmex founder Cole Kennelly told CoinDesk. “The crypto options market adjusts to liquidity and macro catalysts more quickly, so implied volatility often leads traditional markets.”
The spread recently broke out of a months-long range between 20.000 and 32.000 and broke out of the downtrend since the March 2024 peak. These patterns suggest that Bitcoin’s volatility could exceed that of the S&P 500 in the coming days.
The prospect of Bitcoin volatility compared to the S&P 500 could entice currency pair traders to consider volatility bets against Bitcoin and the S&P 500.
Kennelly explained: “When the BVIV-VIX spread widens significantly, some traders view it as a relative value setup: crypto-implied volatility has become cheaper or plentiful relative to equity volatility. This view is often expressed through multi-leg cross-asset volatility trades rather than simple directional positions.”
Volatility trading is a capital-intensive strategy that involves betting on price movement rather than direction, typically through non-directional options or volatility futures.
It goes without saying that these strategies, like other strategies, carry risks and require constant monitoring of positions and adequate capital, which makes them suitable for institutions.
