How Can a Crypto Portfolio Be Hedged Using a Short Position in a Futures Contract?

To hedge a long spot position (the held crypto), a trader can take a short position in a futures contract for the same asset. If the price of the crypto falls, the loss on the spot holding is offset by the profit made on the short futures contract.

This locks in the current portfolio value, protecting it from downside risk. The hedge is often not perfect due to basis risk.