How Can a Miner Hedge against a Drop in Cryptocurrency Price?
A miner can hedge against a drop in cryptocurrency price by selling futures contracts or buying put options on the cryptocurrency they are mining. Selling futures locks in a price for their expected future revenue.
Buying put options gives them the right, but not the obligation, to sell at a predetermined strike price, protecting against significant downside while retaining some upside potential.
Glossar
Selling Futures
Position ⎊ Selling futures, or establishing a short position, creates a contractual obligation to deliver a specified quantity of the underlying digital asset at a predetermined price on a future settlement date.
Miner Hedge
Hedge ⎊ A miner hedge is a risk management strategy employed by cryptocurrency miners to mitigate exposure to price volatility of the digital assets they earn.
Buying Put Options
Action ⎊ Buying Put Options grants the holder the right, but not the obligation, to sell the underlying cryptocurrency at the strike price before expiration, serving as a direct bearish directional bet or a portfolio insurance mechanism.
Selling Futures Contracts
Mechanism ⎊ Selling futures contracts involves an agreement to deliver an asset at a predetermined price on a specified future date, representing a short position assumed by the seller.