More sophisticated hedging tactics involve taking multiple positions against the same asset using instruments such as options.
They're hedging against losses above 10% for a fee of only 2%.Really, Bitcoin as a tool against volatility?At first glance, the argument that traditional investors would turn to Bitcoin to hedge against volatility in the stock markets appears to be an odd one.
BitMEX posted a record trading day in June as the price of BTC hit its 2019 high, further reinforcing the argument that traders are eager for more ways to hedge.
Overall, despite the volatility inherent in cryptocurrencies, the arguments for it being used as a hedging instrument appear to stack up.
Hedging opportunities in DeFi and beyondThe fast-growing DeFi and broader retail crypto finance sector now offers many hedging opportunities.
At the most basic level, Ethereum users can hedge against price drops by locking their ETH into one of Maker's collateralized debt positions to generate DAI. However, lending out the DAI on one of the many platforms that are now available also generates interest of up to 10%, further protecting against losses and offering the opportunity for passive income.
There's a kind of poetic irony involved in the mechanisms behind using DeFi to hedge in this way.
The reason for that - and the fact that users can leverage these tools to hedge against high volatility - is precisely because the underlying cryptocurrencies are themselves volatile.
Hedging exposure with DeFi margin and derivativesAlthough lending is by far the most popular form of hedging in the retail markets and DeFi segment, there are plenty of other innovative ways to hedge.
The adoption of crypto as a means of hedging against the risk of a recession is perhaps one of the clearest signs yet that Bitcoin is now gaining a firm foothold in the financial sector.
Institutions Eye Bitcoin as Hedge Against Global Economic Volatility
Published on Feb 19, 2020
by Cointele | Published on Coinage
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