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Binance CEO Changpeng Zhao Is Expecting High Volatility In Crypto

The term ‘Volatility’ is often used by traders and investors in the crypto space. Despite its usage, some members of the crypto community will have the wrong understanding of it.

Volatility is used to measure how large the daily fluctuations in the price of cryptocurrencies are. High volatility indicates that the prices can change drastically in either direction. Although the indication sounds counterintuitive, lower volatility shows a significant risk of explosive price movements. This phenomenon is due to the fact that realized volatility is a backwards-looking indicator. Traders often tend to over-leverage during quiet periods, causing larger liquidations during sudden price actions.

Though in the majority of cases, people that use the term or hear it remain clueless on what volatility means, as shown in an ambiguous tweet by the CEO and founder of Binance exchange, Changpeng Zhao.

In the tweet, Zhao expects “very high volatility” over the next few months. This would not be the first time the executive made an incorrect assumption on the subject. In May, Zhao stated volatility was not limited to crypto even though multiple sources say that no S&P 500 stock ever matched Bitcoin’s 70% yearly volatility.

Considering how Changpeng Zhao is well-connected being the CEO of the largest crypto exchange, it is possible he might have inside information. Though even if that was a possibility, a person with inside information would know exactly where the impact is negative or positive. Expecting high volatility in the next couple of months does not indicate that said person has full confidence in any direction.

Assuming that volatility will breach the 100% yearly level, investors should use iron butterfly, a limited profit options trading strategy with minimum risk. It should be noted that options have an expiry date, the price must increase during the set period.

Consider Bitcoin trading at $63k with all options listed set to expire on December 31. Selling the 1.23 Bitcoin contracts of the $52k put options while selling 0.92 call options with an $80k strike. Finalize the trade by purchasing 1.15 contracts of $64k call options and another 1.0 contracts of the $64k put options.

To profit, the price of Bitcoin needs to be under $54k or above $75k on December 31, 2021. The risk-reward is not ideal as the payout is 0.056 Bitcoins, but the potential loss is over three times.

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