Hedging Cryptocurrencies  – What Should You Consider?

Rohan Mathew

The cryptocurrency landscape is going through its most extensive bull run. Most of the cryptos available online are trading around all-time high levels. Some experts believe that this trend will continue in the near future. However, no one can predict how the cryptocurrency market will move forward.

A high level of optimism often impacts cryptocurrency prices because of irrational decision-making. Retail investors neglect risk management strategies for cryptocurrency markets and see an impact on their overall investment and portfolio.

The ‘hold onto all investments’ strategy for cryptos may not earn similar returns for everyone. Numerous techniques are there to help you hedge your portfolio.

The DCA Approach 

Booking profits is perhaps the most straightforward approach to controlling risk in the market. On the other hand, selling comes with an inherent risk. If prices continue to rise, exiting the market too soon can lead to losses. 

The popular DCA or Dollar-Cost Average approach comes into play in this situation. Rather than investing cash in a single acquisition or selling all of your holdings, DCA helps purchase or sell an item in small increments. DCA is very effective in volatile markets like crypto.

DCA is critical for understanding when to sell and manage price action uncertainty. Rather than spotting the bull market’s peak, you can sell your assets in smaller amounts as the market rises.

Plowing and Holding

Investors can earn a return on their investments due to DeFi and stable coins. Holding a part of your assets in stable coins allows profits from plowing cryptocurrency value possible while avoiding market risk.

Double-digit returns are expected in DeFi protocols, while rates in other newer liquidity pools can be substantially higher and riskier. Another good way to get a passive income is to hold crypto coins. As the value of assets in holding rises, your profits will also increase.

Technical Analysis 

Technical analysis and trading involve a certain amount of knowledge and expertise. Studying the fundamentals can help individuals who seek an edge over the competition.

Although this does not mean you must purchase pricey trading courses or devote time to making short-term transactions. However, studying a few crucial indicators, such as moving averages, can help you make judgments like whether to take profits.

Many technologies also include methods for analyzing on-chain events. Finding the ‘fair value’ of assets can be another type of technical analysis. It can also be instructive to examine the market’s overall picture from a macro viewpoint.

Storing Cryptos

A critical aspect of crypto protection is its storage. It is crucial to utilize a proper digital wallet and private keys. Cold wallets are ideal if you have large sums of money. Hot wallets are not the best choice to keep cryptocurrency.

Creating a Portfolio

Another essential part of risk management is portfolio creation. Choosing asset types and quantities to purchase can influence your portfolio’s overall risk profile.

It is vital to analyze the amount invested in cryptocurrency vis-a-vis other assets and savings accounts. Also, shortlisting the correct cryptocurrencies to invest in is essential for risk management.

Similarly, it is crucial to identify the percentage of investment you can trade if you opt for various instruments. This approach will help cut down the time otherwise invested in decision-making.


Options are derivative contracts that allow you to buy or sell a financial instrument at a settled price. Put options can be an efficient technique to mitigate risk for people who have a long position in a cryptocurrency portfolio.

Put options allow the ability to sell an instrument at a settled price and during a given timeline. It lets you safeguard your portfolio by shorting if the market goes down.

Call options provide a chance to purchase a financial instrument at a predetermined price in the future and are a long bet. If you take out gains early, then in the event of a downward movement, keeping call options allows you to re-enter the market at a predetermined price if you feel the market will rise in the future. Options are a tricky product that you should use when you have experience. Under these circumstances, you will get better returns.

As you can see, crypto investment has the potential to provide enormous rewards. Historically, cryptocurrency returns are vast and unparallel to other financial instruments in the market.

But higher gains come with greater risk. Using a range of hedging tactics can assist in lowering your risk while increasing the opportunities. However, you should be cautious while undertaking such trades.