Seven Ways to Secure Crypto Assets – A Complete Guide to Hedging

Why has hedging become essential for crypto investors?

Anyone who owns cryptocurrencies knows that feeling – the price of Bitcoin is plummeting, and you don't know what to do. It is precisely in such moments that hedging comes to the rescue. This is a strategy that allows you to protect your portfolio from unfavorable price movements, acting similarly to a regular insurance policy.

In traditional financial markets, hedging is a standard practice. It emerged a bit later in cryptocurrencies, but today it is a key tool for any serious investor. Hedging is not a game for profits – it is a survival game in an unstable market.

How Does Hedging Work in Practice?

Before you move on to specific strategies, you need to understand the three basic steps of every security:

You have assets. You have bitcoin, ethereum, or other cryptocurrencies that you want to protect.

You identify the threat. Bitcoin may drop – that's the main scenario you are worried about.

You open a contrary position. You take a side that will benefit if the price actually falls. If this happens, the profit from hedging offsets the loss on the assets.

Remember - the goal of hedging is not to make a profit, but to protect. An ideal hedge is a rarity, and each comes with costs.

Seven Hedging Strategies You Must Know

1. Futures Contracts – A Classic Genre

Futures are contracts that allow you to trade cryptocurrencies at predetermined prices in the future. They work simply for hedging: if you are concerned that bitcoin will drop, you sell futures.

Example: You have 0.2 BTC. Bitcoin is at $50,000. You sell futures, agreeing to sell 0.2 BTC at $50,000 in a month. If the price actually drops to $40,000, you buy 0.2 BTC at the lower price and fulfill the contract. The profit from the futures will offset the loss on the Bitcoin you hold.

Advantage: Easy to use, transparent pricing. Disadvantage: If the price rises, you still have to sell at the agreed price, losing potential profits.

2. Options – Flexibility Without Obligation

Options give you the right, but not the obligation, to sell or buy cryptocurrency at a specified price. This distinguishes them from futures.

For hedging, you most often use put options. If you are concerned about the drop in bitcoin, you buy the right to sell it at the current price, regardless of what the market price will be.

Example: Bitcoin at $50,000, you buy a put option for $500 (premium). Bitcoin falls to $40,000. You exercise the option and sell at $50,000. Cost of hedging: $500.

Advantage: You can limit the maximum loss, and if the price rises, the option expires worthless – you only lost the premium. Disadvantage: Bonuses can be high during high market volatility.

3. CFD Contracts – Speculation Without Asset Ownership

CFD (Contract for Difference) is a derivative that allows you to earn ( or lose ) on the price difference without actually owning the cryptocurrency.

If you own bitcoin and want to hedge, you open a short position (short) on bitcoin CFDs. The profit from the CFDs should offset the loss on the actual bitcoin.

Advantage: Access to greater leverage than in futures. Disadvantage: Leverage amplifies both gains and losses.

4. Perpetual Swap – Continuous Hedging Without Expiration Date

Perpetual swaps are contracts that never expire and allow for continuous trading. They are based on the price of the underlying asset (, e.g., bitcoin ), and usually offer leverage.

If you expect a drop in Bitcoin, you open a short position on a perpetual swap. As long as the price is falling, your position is profitable.

Advantage: No expiration date, you can hold your position as long as you want. Disadvantage: Requires active management, variable financing fees.

5. Short Selling – Borrowing and Selling

Some platforms allow you to borrow cryptocurrency, sell it now, and buy it back later. If the price drops, the profit can offset losses on other positions.

Advantage: Simple mechanism. Disadvantage: You must return the borrowed cryptocurrency; loan fees can be significant.

6. Stablecoins – A Temporary Exit from the Game

Stablecoins are cryptocurrencies linked to the value of, for example, the dollar. If I am concerned about a market decline, I can convert some of my volatile assets into stablecoins.

This is not aggressive hedging – it's more like stepping out of the game for a while. You won't benefit from the increases, but you are protecting your capital.

Advantage: The simplest strategy, minimal cost. Disadvantage: You lose exposure to potential gains.

7. Diversification – Classic Risk Allocation

Having various cryptocurrencies that react differently to market changes can act as a natural hedge. If Bitcoin is falling, Ethereum may stabilize or increase.

Advantage: Natural, without additional costs. Disadvantage: Does not guarantee protection – in bear markets everything drops together.

Practical Example: Securing 0.2 BTC

You have bitcoin worth $10,000 (, 0.2 BTC at $50,000 each ) and you want to protect yourself.

Option 1 – Options: You buy a put option for $500. If Bitcoin drops to $40,000, you sell at $50,000. Total loss: $500.

Option 2 – Futures: You sell futures for 0.2 BTC at $50,000. Bitcoin drops to $40,000. You buy 0.2 BTC cheaper and deliver at the agreed price. The profit covers the loss.

Option 3 – Stablecoins: I convert 50% of bitcoin to stablecoins. If the price drops, only half of the portfolio loses.

Every strategy has different consequences – you must choose the one that fits your risk profile.

Hedging Costs – What Do You Need to Pay?

Hedging is not free. Here are the main costs:

• Options premiums: They can range from 2-5% of the position's value under normal conditions, much higher during volatility.
• Futures fees: Brokerage fees, sometimes commissions.
• Funding for perpetual swaps: If the majority of the market is long, you pay to maintain a short position.
• Spread bid-ask: When exiting a position, you must buy higher than you sold.

Calculation: If you secure a position of $10,000, you can lose $200-500 in costs before the price even drops.

Risks Associated with Hedging

Counterparty Risk

If the broker or exchange goes bankrupt, your hedging position disappears. This is particularly true for CFDs and over-the-counter derivatives. In the case of stablecoins – the issuer must actually hold a reserve.

Execution Risk

During extreme volatility (, such as a crash within seconds), options and futures may not provide the expected protection. The price moves so quickly that hedging mechanisms fail.

Limiting Growth Potential

When you hedge with futures and the price rises, you lose potential gains. That's the price of safety.

Liquidity Risk

Some instruments may be illiquid – it is difficult to sell them quickly without a significant drop in price.

Regulatory Risk

The regulations regarding crypto derivatives are changing. Strategies that are legal today may be banned tomorrow in your jurisdiction.

Complexity And Errors

Advanced hedging strategies are complicated. One mistake can cost more than the savings from hedging.

How to Choose the Right Hedging Strategy?

Before you decide on a specific strategy, ask yourself the following questions:

How much do I want to spend on security? If you're short on budget, stablecoins or diversification is a simpler path than options.

How long do I want to be secured? Futures have expiration dates, perpetual swaps do not.

How much does my position change? If you trade actively, constantly changing hedges can be costly.

What level of experience do I have? Beginners should start with stablecoins or diversification, while experienced traders can engage in options.

Practical Tips

Don't put everything on one security card. A combination of several strategies, e.g., 30% stablecoins + short CFD on part ( often works better than a single approach.

Monitor the market continuously. Hedging is not set-and-forget. You need to watch the conditions and adjust your positions.

Use stop-loss. Even with hedging, set levels at which you automatically exit positions.

Understand each instrument. Before using futures or options, thoroughly study their mechanics.

Ensure legal compliance. There may be restrictions on the use of derivatives in your jurisdiction.

Do not complicate without reason. The simplest hedging strategies are often the most effective.

Summary

Hedging is a powerful tool for portfolio protection, but it is not for everyone. It requires knowledge, discipline, and risk management skills. Futures contracts, options, CFDs, perpetual swaps, short selling, stablecoins, and diversification are seven methods you can implement – each with different costs and risks.

Before you start hedging, make sure you understand the full cost of the operation, any associated risks, and whether the strategy is legal in your location. Remember – good hedging is one that actually protects your assets, not one that looks the coolest on paper.