Destruction of the HODL’ers Incoming
This year has been nothing short of incredible for Bitcoin. Rocketing up more than 1000%, the crypto currency has smashed expectations (not for some though) of its adoption and price. As a trader though, I stare at this hockey stick chart every day and think to myself “what goes up, must come down.” Eventually there will be a crash, it may only last a few minutes, as seen in the most recent 15% slam down from ATHs above 11,000. However, there are a growing number of ways that you can protect your capital and effectively hedge against a market crash. Lets take a look at them.
In what really is just a giant CFD, the CME are going to be releasing Bitcoin futures for trade sometime in January. Additionally, the NASDAQ and brokerage Cantor Fitzgerald have also signaled that they are planning to release crypto futures some time in the next year. While it will be great to be able to load up on shorts when the time comes, I’m a bit wary that the CME futures are not settled in Bitcoin, instead they are cash settled. This presents quite a big risk, not for crypto traders, but for the fiat ones. There will be huge ability for arbitrage in the beginning and I’m sure that the product is going to trade at a premium.
One of the easiest ways to short crypto is to open a CFD account at IG or one of the other myriad of sites. These types of trades are also like the futures, but in this case, you simply choose the spread or dollar per point you want to risk and then trade from there. This gives you a great way to choose the direction of Bitcoin, but unfortunately, you don’t actually trade the underlying.
Born out of Bitcoin last year and the top claimant to the crypto throne, Bcash is a great hedge against a free-falling Bitcoin. Siding with Bcash though amounts to choosing sides in the ongoing civil war. Some parties want a store of value coin, while others want a means for transacting. At the moment, the market has sided with Bitcoin, whose market cap is more than 10x greater than that of Bcash, however, if there was a major collapse in the price of Bitcoin, investors would probably flee to the safety the young successor.
Most people don’t know, but you can already buy Bitcoin on a securitized exchange. There are several products at the moment which have already been released or will be released soon. Currently on the market are Grayscale’s Bitcoin Investment Trust (GBTC) and XBT Provider (XBT — Only available in Sweden). Both of these products are synthetic derivatives of Bitcoin, which track its performance. Investors who want these products pay a significant premium to town them. GBTC for example, was listed at $15,630 per Bitcoin as of writing: trading at more than a $5,000 premium to the underlying. Investors have to pay a hefty sum to own the product.
Another company offering Bitcoin securitization is CyberTrust. They are in the middle of their ICO, where their CABS token represents the price of securitization. With 1 of their CABS tokens, an investor will be able to securitize 1 Bitcoin into what they are calling a “Bitcoin Global Note.” After their ICO is done, they will be direct competitors to Grayscale and XBT Provider. The difference comes down to the price of the securitization premium. While GBTC trades at an average of 45% higher, CyberTrust’s ICO participants can lock in their securitization premium at just 2.63%, or $263 as of writing today.
We may be in a crypto bubble, but the thing about bubbles is that if everyone says we are in one, then we aren’t. Bitcoin’s value has shown no signs of stopping and the majority of retail and institutional investors haven’t even joined the party so far. While there could be trillions of capital waiting to be deployed, the SEC and other regulators could put the lid on the crypto markets. If that’s the case, it could drop the price of all crypto by a 30–50%. There are many ways out there to take advantage of the coming pull back. When that time comes I’ll be ready to short, will you?
