Wall Street Veterans Introduce Innovative Volatility Product to Digital Asset Space

ยท 04 Jun 2019 in Press Release

With global policy development and adoption underway, the trading volume of digital assets has been steadily rising especially as the Bitcoin price recovers last several months. Different from traditional stock market that is limited by trading hours and circuit breakers, digital asset trading runs continuously 24*7 across all geographic regions with fewer regulations in place and less institutional participation. Therefore, the volatility has been noticeably higher than most of the traditional assets making it riskier as a mid-term investment product but more of short-term trading vehicle.  As the market further matures and expands, there is an increasing need for the development of more derivative products, especially volatility product that traders can trade off on price fluctuation. With such observation of market requirement,, a leading next generation digital asset trading platform, introduces its first volatility-linked derivative product: Volatility Card, a simple yet elegant way to trade on the price movement of underlying digital asset.

. Volatility Product: Risk Mitigation and / or Momentum Trading

In the traditional finance industry, diversified volatility derivative products are readily available for traders to capitalize upon the short-term trading momentum and/or use as risk hedging mechanism, such as Index-linked (such as VIX) options, futures and ETFs across major asset classes. Those products usually require the traders to “pay” premium as part of cost structure for optionality. Such derivatives can be used for both hedging and speculation. However, most of such derivatives have not been introduced to the space of digital asset trading, except for a few “leveraged” products which by design increase risk exposure instead of mitigating it. So current market calls for new types of volatility products for global users to gain exposure to the increasing volatility from both trading and risk management perspectives.

ⅱ. Breakthrough in Digital Asset Trading: A Simple yet Effective Product to Extract the Essential Value of Volatility

For traditional asset classes, volatility derivatives, such as option, set a series of strikes and expiry time, and each combination forms a new tradable “asset” that demands liquidity.  The liquidity of all these options are hard to maintain on the consistent basis. Even the most liquid asset may see sparse liquidity in options of strikes that are far away from spot price or expiration dates that are either too close or too far. And it even gets worse in the case of digital assets. Various issues from scarcity of liquidity to unresolved infrastructure issue like  clearing and settlement has hindered the development of volatility derivatives products.

With lack of mature market structure and nascent development stage, the digital asset trading market has been highly volatile with many sharp price movements, especially recent months. There is no better time than now to introduce an entry-level volatility product for broad-based retail and institutional users. This new product is called Volatility Card, to be launched, a rising digital asset trading platform founded by a group of Wall Street quantitative trading veterans. The principle of simple yet effective design aims to extract the essential trading value of volatility.

. First Volatility Card: Easy Way to Trade on Daily Price Movement of Bitcoin announced its launch of the first volatility product, Volatility Card, named as Turtle Card and Bunny Card after the famous Aesop’s fable – the Tortoise and the Hare. Similar to short-term volatility products with quasi-option structure yet simple payout form, the card allows users to forecast and trade on 24hr-window (UTC 00:00 – 24:00) price fluctuation for the underlying trading pair.

Turtle Card represents a prediction of 24-hour price movement within certain percentage range; while Bunny Card represents a prediction of 24-hour price movement above certain percentage range. For instance, if user expects the 24-hour price change for BTC/USDT within +/- 3%, the user should purchase Turtle Card. Otherwise, the user can purchase Bunny Card for the prediction for BTC/USDT 24-hour price movement  ≥ 3%.  Each card has its notional value and sale price, denominated in either USDT or BTMX, the native token of platform. Users who can correctly predict the range of price movement at the end of 24-hour window will get payout equivalent to notional value of the card. Otherwise, the card will become invalid upon expiration.

To mitigate potential price deviation due to market volatility, uses composite reference price for the calculation of 24-hour price movement. The reference price is computed by taking an average of last trade price from five exchanges (upon availability at the time of computation).

Volatility Card is another great example demonstrating’s deep understanding of the market and user need. This product is by design friendly to both experienced and new traders. First, there is preset of 24-hour window. Users only need to make decision on when to buy in, not the time of settlement. Second, user picks the card to predict only the range (absolute value) of price movement, not the direction (up or down). Third, the card sale price is subject to change based on real-time market condition, while the notional value for the card is also preset as fixed. This design, to some extent, would mitigate pricing risk due to the time difference.

. Potential Risk Hedging Tool: Riding through Raging Volatility

As stated in the beginning, volatility products can be used to mitigate certain trading risks and cryptocurrency has much higher volatility than any other traditional asset classes.  Last six months, Bitcoin has seen a wide ride from the crush down to winter lows of $3500 to recent price spike up to $9000. In those extreme scenarios, tail risks are hard to predict. When leverages are applied, the profit or loss would be magnified. As Volatility Cards on are irrelevant to the rise or fall of price, It may serve as a potential tool for partially risk hedging in the volatile market condition against outsized price swing.

v. Conclusion

In summary, Volatility Card is another move by to further expand its trading product suite for its global users leveraging their deep root in traditional finance and experience with financial product design . With its potential function to mitigate risks as well as trade on momentum, it helps attracting more users to the platform. Along with the margin trading and transaction mining launched earlier, this is definitely a step forward from product offering perspective to better serve the dynamic trading needs of users and encourage liquidity on the platform. Although the Volatility Card is largely simplified compared to the complex derivatives in the traditional financial space, has clearly established itself as a leading industry innovator in the highly competitive digital asset trading space through the introduction of this friendly new product. It is also a positive sign indicating the market is developing along the right direction.

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