Cryptocurrency hedging strategy, two options to remove exchange rate risks
One of the strategies for hedging currency pairs is a strategy based on the inverse correlation of these assets.
Inverse correlation means that the prices of two selected assets move in opposite directions, that is, one currency, at the same time, is in an upward trend , and the other is in a downward trend.
For example, such currency pairs as EURUSD and GBPUSD have an opposite correlation, which means that when the price of EURUSD rises, the value of the GBPUSD pair will fall. By making two transactions in the same direction, you can practically hedge your position.
Moreover, if you successfully select currency pairs, you will have the opportunity to earn money on a positive swap without fear of changes in the exchange rate.
Thanks to cryptocurrency hedging, it will be possible to make guaranteed money on staking , receiving interest for blocking assets.
All you need to do is find assets with inverse correlation; for these purposes you can use a special table:
As you know, the smallest correlation coefficient in the table is 0.2, that is, all assets move in the same direction. You can also use the correlation indicator , but it is unlikely to give any positive results.
The essence of the issue is that almost all cryptocurrencies have a direct correlation; they simultaneously rise in price and at the same time fall in price. Only some are faster, and some are a little slower.
Therefore, unfortunately, it will not be possible to use a hedging strategy on cryptocurrencies in the same way as on conventional currencies.
How to hedge cryptocurrencies?
It turns out that hedging cryptocurrencies is not possible, but fortunately this is not entirely true, it just requires a slightly different approach.
That is, take a third-party asset for hedging, which has an inverse correlation with the cryptocurrency market. For example, the USDJPY currency pair, that is, buy the US dollar for the Japanese yen:
You lead when the price of Bitcoin falls, the US dollar begins to strengthen against the Japanese yen.
You may be able to find an asset that has an even stronger correlation to cryptocurrencies.
As a result, we can say that hedging cryptocurrencies is possible, but in a slightly different way than we are used to seeing with conventional currencies. But as a result, you compensate for losses on cryptocurrency at the expense of profits on another asset.
Second option “Locking cryptocurrencies”
If you want to protect yourself when staking, then you can also use locking , when you send cryptocurrency for staking on an exchange or in your wallet and at the same time open a sell transaction for the same cryptocurrency with a cryptocurrency broker - https://time-forex .com/kriptovaluty/brokery-kriptovalut
In this case, you will completely eliminate exchange rate risks, since the transaction will be opened for one asset, and all you have to do is wait for the accrual of interest on staking.