The CRYX Cryptocurrency Volatility Index (CVX) was developed by the CRYX team in 2017 in order to measure the volatility of the top 50 cryptocurrencies over a 3-weeks rolling period. It is used to directly analyze risk of the cryptocurrency market as the VIX is commonly used to monitor risk in the stock market.
Frequently used by individual and institutional investors to assess and track the market volatility in order to optimize their portfolio, let us now use the CVX index to point out the recent risk evolution of the cryptocurrency market.
The graphic above represents the CVX evolution since January 2015 (as of 08/03/2018)
Historically, the cryptocurrency market has always been volatile and the volatility of the market is a characteristic part of its success. Back in 2015, even before the very popular advent of cryptocurrencies in general, the market was already extremely volatile with some recorded daily variations +/- 10%, even though volatility seemed to be at a relatively low level (indeed, the CVX was constantly moving around 1.85).
According to the same chart, a first net increase of the CVX level during June 2017 where the CVX jumped from below 2.00 to 2.60 in a couple of weeks can be easily spot. This latter corresponds to the period during which the underlying market starts performing what will become a long and impressive bullish run, reaching some valuation record for most of the top cryptocurrencies.
The CVX level increase stopped in December 2017, reaching a peak of 3.53 before reverting to its previous level of 2.60. Lately, the cryptocurrency market volatility rebounded to eventually cross the 3.00 threshold level, clearly above its 2-year average of 2.1.
This recent pick-up is clearly a sign of risk upsurge and tensions on the cryptocurrency market which is matching with the ongoing debate and current discussions around market regulations, various bans, compliance requirements and so on… 2018 is a decisive year during which investors and regulators will be trying to set up the rules of the yet unregulated market.
“From a portfolio management standpoint, the recent risk rise in the cryptocurrency market has to be deeply taken into consideration and has to be appropriately managed.” — Olivier Al-Khatib, Chief Data Scientist of CRYX
In this way, conservative investors will try to weight more their portfolios in favour of some cryptocurrencies with a risk level below the market level measured by the CVX Index, while more aggressive investors will take advantage of the current risk level by weighting their portfolios more in favour of some cryptocurrencies with a significantly high level compared to the CVX index.
Investors have also the possibility to screen and filter the riskiest or relatively non-risky cryptocurrencies in order to choose to be only exposed to a couple of them to finally obtain a minimum volatility strategy or a maximum one. They can be used to hedge your portfolio on short period of high volatility by being mainly exposed to the least risky cryptocurrencies.
How are you managing the recent volatility increase of the market in your own portfolio? Let’s talk about it
If you are interested in the CRYX’s project and you are willing to use the CVX Cryptocurrency Volatility Index, feel free to visit the CRYX’s website on www.cryx.io and/or to contact the CRYX Team on [email protected]