Crypto Stable Hedging

When the market is calm, bouncing around in a range, as it does 80% of the time, you might find yourself wondering what’s the best method to preserve your capital. Going back and forth converting to USD might seem like a good solution but based on your local regulation this might not be the preferred way of doing things.

Types of risk:

  • exchanges are hacked or go out of business
  • stable coins lose their value
  • taxes and fees
  • volatile periods create unexpected highs and lows

Stable Currencies: USD/EUR

This method might look the safest. However you are forced to keep the core of your capital on the exchange and local regulation might impose tracking each conversion back and forth for tax purposes. The main advantage is the risk is reduced to only the risk of the exchange.


All stable coins are backed by centralized institutions with different levels of trust. Besides the frequent rumors that the companies are in trouble, making one think what would happen with the capital and it’s worth in such a case, these companies have the power to block any amounts owned by private investors. All the risk elements are present: the company, the exchange and the centralized nature of control. NuBits is the prime example of what can happen to a stable coin. The main advantage of this strategy is the fact that it is considered by most countries a crypto coin, not making it predisposed to taxing during conversions back and forth. Stable coins can be transferred to a personal wallet.

Hedging using futures

One strategy could be to deposit 33% of the targeted amount on a future exchange, entering a short using the entire hedged amount. Basically, it’s a 3:1 leverage situation, risking only one-third of your capital on the exchange. The main risk of this strategy is the exchange safety and sharp spikes, frequent during unexpected events. One Binance future contract spiked bitcoin trading to 99.999$ dollars at one point. The fixed dated contracts compared to perpetual ones have more predictable fees.

Hedging using options

Hedging around 15% on an exchange like Deribit using PUT options can be a viable solution. The advantage is the limited amount you have to keep on the account but the downside is the price must move by 10% in any direction for the hedging to be near zero at the end of the contract.

In conclusion all methods have some kind of risk embedded in them. The safest approach might be to use a mixture of them to avoid any long term risk and preserve the capital for the next trading cycle.

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