In What Scenario Would a Cryptocurrency Exchange Use a Long Hedge? ▴ Learn

In What Scenario Would a Cryptocurrency Exchange Use a Long Hedge?

A cryptocurrency exchange would use a long hedge if it had a large, fixed future obligation to purchase crypto at a specific time, but was concerned the price would rise before then. For example, if the exchange had promised to pay out a large fixed amount of Bitcoin to clients in three months, they could buy a long futures contract now.

This locks in the purchase price, protecting them from a rise in the spot price of Bitcoin over the next three months.

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