Hedging your crypto holdings against market volatility is a must. Here’s how to use your favourite crypto trading platform to do it.
Every good investor knows that a diversified portfolio is a healthy portfolio. A sentiment that is no less true when speaking about crypto investments. Bitcoin and other cryptocurrencies are a bit of an oddity when it comes to typical trading habits. While traditional investment opportunities, like derivatives, exist within the market– the crypto market behaves a bit differently than the NASDAQ or NYSE. So employing hardwired trading habits in a crypto market can sometimes create more problems than it can solve.
Which is where crypto trading platforms come into play. Platforms like Bitvavo specifically focus their functionality toward novice and retail investors that are just starting to learn the wild world of crypto investments. Which means that finally choosing between offsetting your bitcoin portfolio with a lesser-known token, or taking advantage of perpetual swap and futures contracts that are now available isn’t such a tricky decision. All you need to do is understand market volatility, know what you’re looking for in a hedge, and find out exactly what your trading platform can offer.
Why the Volatility?
Bitcoin is not only the best known crypto because it’s been around the longest and enjoys a widespread adoption– it’s also known for being one of the most volatile assets that you can invest in. Which can be an incredibly good thing when approached with caution and invested in wisely. Bitcoin has long been considered “digital gold”, meaning that it is often used as a hedge, or an asset class that can be invested in to protect the rest of your portfolio. Oftentimes, hedges are those assets that generally increase or decrease in value in stark opposition to other assets held within your portfolio, offering a bit of insurance against losses or unbridled gains in other areas.
Bitcoin has long been an ideal hedge not only because it holds its value well, but also because of the volatile swings in value that aren’t correlated to traditional markets. So what is it that makes Bitcoin as volatile as it is? Largely, it’s because bitcoin, and other cryptos, are incredibly speculative assets– meaning that their value is almost entirely derived from public interest in the market, as opposed to profitable application or availability. With speculation at the heart of Bitcoin’s value, it means that merely keeping a steady eye on market sentiment may be enough to enable investors to make wise trading decisions.
Using a Crypto Trading Platform to Diversify
But Bitcoin, and all cryptocurrencies, are also heavily nuanced. Which means that in order to really understand the market and the commodity itself, an investor would need to do a great amount of research into how cryptocurrencies work, what their possible applications are, and where they could be in the future. With crypto, this also means that investors will need to understand loads of technical specs and jargon, as well as have an amount of IT savvy in their back pockets.
Which can be a bit overwhelming for many retail or novice investors, so using newbie focused crypto trading platforms to help follow top performing cryptos can ease some worry for many. Hedging your crypto with crypto can be an excellent way to stay within the market that you already have vested interest in, and still be able to diversify your portfolio in a healthy way. Besides there being literally thousands of Altcoins, or cryptocurrencies that aren’t Bitcoin, many of the top performing coins will correlate with Bitcoin, but also see their own specific applications and gains.
With the emergence in DeFi, there are also a number of derivatives that can be used in order to ensure a more stable performance of your existing holdings. If you’re not entirely comfortable with whitepapers or feel like you have a solid enough grasp on which ICOs might be the most beneficial, some trading platforms will offer their clients the ability to hedge their portfolios with futures or options trading. Which is indeed a heady trading practice, but one that some traders are far more comfortable with. Either way, looking toward your crypto trading platform for advice on how to best hedge your portfolio for your investment style is bound to give you options. Or futures. Or better crypto.
Founder Dinis Guarda
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