As crypto markets continue to mature, more and more asset classes become available to miners and can help them earn a higher ROI on their mining investment - without risking huge losses in a volatile crypto market.
Miners can deposit their inventory with account providers, who use those held assets to provide loans to vetted crypto users looking for extra capital.
Crypto miners can lock up some of their crypto inventory in a futures contract and sell that contract for more than the crypto's current marketplace value.
Cash settlement is of limited use to crypto miners who actually own and eventually want to transfer their tokens, so miners should focus on physically settled futures contracts to ensure that their inventory actually changes owners.
Miners can sell options on their existing inventory and future inventory.
If the token's market price drops below a certain benchmark, miners can exercise their put option at its expiration and sell off their inventory at the put's price rather than actual, lower market prices.
Miners can sell forward contracts on inventory they don't even own yet through OTC negotiations and use the sale revenue to expand their mining operation, which makes it more likely they'll end the contract both meeting its inventory terms and possessing a more powerful mining rig.
ConclusionThe aforementioned strategies are from the world of traditional finance, and they can offer some promise for miners who want to increase their ROI without increasing the risk associated with holding inventory.
Miners may opt to hold the majority of their inventory in interest-bearing accounts and a smaller portion on a derivatives trading venue where traders buy and sell options and contracts to hedge their overall position.
Executing this strategy will undoubtedly both increase the return on the investment for the mine operators and improve market pricing as a whole.
How Miners Can Hedge Their Inventory to Increase Return on Investment
Published on Aug 9, 2020
by Cointele | Published on Coinage
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