What Is Basis Risk When Using Crypto Futures for Hedging?

Basis risk is the risk that the price of the asset being hedged (the spot price) and the price of the futures contract do not move perfectly in tandem. The "basis" is the difference between the spot price and the futures price.

If the basis changes unexpectedly between the time the hedge is initiated and the time the position is closed, the hedge will not be perfectly effective, leading to a loss or gain on the combined position.