Portfolio Details
Bitcoin
How to Hedge Bitcoin Risk
As cryptocurrencies continue to gain attention, traders have begun finding ways of protecting their bitcoin holdings from risk. Find out how to hedge bitcoin risk – including three cryptocurrency hedging strategies.
Risks of Trading Cryptocurrencies?
01
Lack of Regulation
As cryptocurrencies are decentralised, banks and governments have yet to understand how best to protect traders and investors who choose to buy and sell the assets. The decentralised nature of bitcoin has thrilled its supporters, but it could create legal and taxation issues as it grows in popularity
02
Susceptibility to Hacking
A considerable number of cryptocurrencies are stolen from digital wallets every year. In 2018 alone, it is estimated that $1.7 billion worth of cryptos were stolen and there is rarely a way to retrieve these losses
03
Reliance on Technology
Bitcoin and other cryptos are completely digital assets, which means that they are essentially worthless without access to technological resources. With gold, real estate or even shares, you are gaining ownership over something that can be exchanged, whereas cryptocurrencies have no collateral backing them up
04
Market Volatility
Cryptocurrencies are notoriously volatile, both in intraday trading and over longer periods. For example, bitcoin’s price experienced a sharp spike in December 2017, reaching a high of $19,763.50, before falling to a low of $3126.29 in December of the following year
How to Hedge Bitcoin
Short-Selling Bitcoin
Short-selling in general is the practice of taking a position to sell an asset, believing that it will fall in value and you can buy it back for a lower price – profiting from the difference.
Hedging Bitcoin with CFDs
As derivative products, you would not be required to own the underlying cryptocurrency in order to open a position. This means that you can speculate on the price of bitcoin without ever having to worry about opening an exchange account or digital wallet.
Hedging Bitcoin With Futures
Futures are a type of financial contract in which two parties agree to trade an asset, in this case bitcoin, at a predefined price on a specific date in the future. Bitcoin futures are seen as providing a legitimate way for market participants to lock in a market price.