Could the Miner Use a Futures Contract Instead, and What Would Be the Trade-Off?
Yes, the miner could use a futures contract to hedge, which involves selling the futures contract (short hedge). The trade-off is the loss of customization.
Futures contracts have standardized sizes and expiration dates, which may not perfectly match the miner's production schedule. Furthermore, the miner would be subject to daily MTM and margin calls, introducing cash flow volatility.
The benefit is reduced counterparty risk and higher liquidity.
Glossar
Reduced Counterparty Risk
Definition ⎊ Reduced Counterparty Risk is the systemic lowering of the likelihood that one party in a financial transaction will fail to meet their contractual obligations, achieved primarily through collateralization and transparent, automated settlement.
Cash Flow
Valuation ⎊ Cash flow, within cryptocurrency, options, and derivatives, represents the net amount of liquidity generated and expended over a defined period, critically influencing asset pricing and risk assessment.
Futures Contract
Leverage ⎊ Futures contracts in cryptocurrency represent agreements to buy or sell an underlying asset at a predetermined price on a future date, functioning as a derivative instrument that allows for amplified exposure without immediate asset ownership.
Trade-off
Balance ⎊ In derivatives modeling, this involves the necessary balancing act between maximizing potential yield and managing downside risk exposure through hedging instruments.