What Are the Risks Associated with Hedging Using Cryptocurrency Futures?

Hedging with cryptocurrency futures carries several risks. Basis risk is a key concern, where the price of the futures contract does not move in perfect correlation with the spot price, leading to an imperfect hedge.

Counterparty risk is another issue, where the exchange or counterparty to the trade could default on their obligations. Liquidity risk can also be a problem, especially in volatile markets, where it may be difficult to enter or exit a futures position at a desired price.

Finally, there is the risk of margin calls and liquidation if the price moves against the hedge and the trader cannot meet the margin requirements.