The cryptocurrency market is widely known for its volatility. This characteristic, which on the one hand attracts many investors looking for high returns, can also represent a considerable risk, especially in periods of high instability.

Over the years and with the development of this universe, mechanisms that help to smooth these movements appear and, thus, the concept of hedging in cryptocurrencies emerges.

In this article, we will explore what hedging is in the crypto context and present four strategies that you can use to reduce the risks of your operations.

What would be Hedging with Cryptocurrencies?

Hedging, which loosely translates to “protection”, is a common practice in traditional financial markets, such as stocks and commodities. In the crypto market, it plays the same role. Hedging, in a simplified way, means adopting strategies that help protect the value of assets, minimizing losses in times of fluctuation.

When an investor executes a hedging strategy, it means that the person is adopting an inverse position to the one they want to protect against, so that if there is a loss in one investment, another position will bring some gain to compensate. The objective of hedging is not to make a profit, but rather to minimize possible losses. Almost as if it were insurance.

Four Cryptocurrency Hedging Strategies

In the cryptocurrency market, hedging can be done in a variety of ways. Below, we will present the four main strategies for protecting your assets, with the names in our free translation and also in English (which is how you will probably find them).

1. Short Selling

Short selling is a hedging technique in which the investor bets on the decline of an asset. It works like this: the investor sells an asset that he does not own, hoping to buy it later at a lower price and profit from the difference.

It may seem a bit complicated, but an easy example will help you understand. Imagine that you have a significant amount of Bitcoin and your biggest fear is that the price will fall due to an upcoming event - for example, a halving. To protect yourself, you can “short” the Bitcoin on a broker that allows this operation. If the price falls, the profit obtained from the short may offset the loss in the value of your asset.

However, this strategy requires caution, because if the price rises instead of falling, the losses can be large. Think, for example, of those who shorted Nvidia, which rose more than 200% in 2023 and, in 2024, doubled in size. The losses for those who executed this strategy tend to be infinite.

2. Futures Market

The futures market is another popular hedging tool. In this type of strategy, you enter into a type of contract in which you commit to buying or selling an asset at a predetermined price on a future date. This way, you can guarantee a fixed price for the asset, regardless of its appreciation or depreciation up until the date of the contract.

Example to help you understand: if you own Ethereum and want to protect yourself against a possible drop in price, you can sell Ethereum futures contracts. If the price of Ethereum drops, the losses on the asset will be offset by the gain on the futures contracts.

This type of strategy is widely used by traders who have a long-term vision and want to minimize risks in periods of high volatility and tends to have greater availability for crypto assets that already have greater security - such as Bitcoin and Ethereum, which already have a spot ETF.

3. Perpetual Swaps

Perpetual swaps are a type of derivative that allows investors to maintain a long or short position with no expiration date. Unlike futures contracts, perpetual swaps are constantly renewed, meaning investors can hold them indefinitely.

To use this strategy, simply open a sell position in perpetual swaps on the asset you want to hedge. If the price of the asset falls, the gains from the sell position will help balance out the loss on the asset in question.

It is a flexible and useful strategy for those who want to protect themselves continuously and avoid renewing contracts with fixed terms. It is also something that is usually carried out by those who are looking at the long term.

4. Options

Options are contracts that give an investor the right, but not the obligation, to buy or sell an asset at a specific price on a future date. When it comes to the crypto market, options are particularly advantageous because they allow you to protect assets against sudden movements without having to sell them directly.

In this strategy there are two main types of options:

  • Call Option: Gives the right to buy the asset at a specific price.

  • Put Option: Gives the right to sell the asset at a specific price.

For those who own cryptocurrencies and want to protect themselves against a possible drop, the ideal strategy is to buy put options. This happens because, if the price of the crypto falls, the value of the put option increases, helping to compensate for the devaluation of the currency.

The interesting thing about options is that, if the market moves in the opposite direction to that expected, the loss will be limited to the amount paid for the option - because, again, an option is a right, not an obligation to buy or sell the asset in the future.

How can these strategies protect your investments?

Each of these strategies offers a unique approach to minimizing risk. If the market takes a sudden dive, short selling and futures can provide protection, while perpetual swaps offer a flexible, ongoing hedge. Options, on the other hand, are excellent for those who want to limit risk while still holding the asset.

However, it is very important to understand not only the strategies but also the risks they entail and which ones you are most willing to face. For example, short selling operations and futures contracts can amplify losses if the market moves in an unexpected direction.

In addition to choosing the strategy, also choose the right platform

Choosing a reliable trading platform is essential to ensure the security of your hedging operations. It is essential that you choose a broker that offers transparency and reliability in risk management tools, as well as attentive support for derivatives contracts.

Another point worth looking into is the possibility of setting up stop-loss orders, which are those that automatically close a position if the market moves against you, which helps to limit losses. At Binance, you will find a good range of hedging options and they are known for the security of their operations.

Hedge: Don't forget to protect your crypto investments!

As you can see, hedging in cryptocurrencies is an essential practice for those looking to protect their assets in a highly volatile market, as is precisely the case with cryptocurrencies. Strategies such as short selling, futures contracts, perpetual swaps and options provide effective means of managing risk, but they require knowledge and careful analysis.

Always remember: as with any investment, knowing the risks and using hedging tools wisely can help preserve your assets and bring more stability to your portfolio. 

And of course, don't forget to always choose a reliable platform and adapt strategies to your risk profile and market conditions. With good preparation, hedging becomes a powerful protection tool in a market that, despite being promising, can be unpredictable.

Did you know any of these strategies? Have you already implemented any of them?

#segurança #EstratégiaCrypto

---

Image from rawpixel.com, available on Freepik.