How Can a Miner Use a Futures Contract to Hedge against Price Volatility Affecting Their Breakeven Point?
A miner can use a short futures contract to lock in a selling price for the cryptocurrency they will mine in the future. By selling a futures contract at a price above their calculated breakeven point, they effectively hedge against the risk of the spot price falling below their cost of production.
This guarantees a profit margin, stabilizing their cash flow regardless of market price volatility.
Glossar
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.
Hedging Mining Revenue
Risk ⎊ Hedging Mining Revenue is a critical risk management function employed by cryptocurrency miners to mitigate the significant price volatility and difficulty risk associated with their future coin production.
Breakeven
Equilibrium ⎊ The breakeven point, across cryptocurrency derivatives, options trading, and broader financial engineering, represents the price level at which an investment or trading strategy neither generates profit nor incurs a loss.