Topic: How do you manage Bitcoin price risk? - page 3. (Read 787 times)

With great profits comes greater risks. I don't have to manage price risk because I am a long term hodler.
I am estimating to hold at least for next 15 - 20 years provided bitcoin is not attacked by someone or something unexpected happens.
I wonder how much bitcoin would increase in price by then 
Yes, I know we have lots of opportunities to increase our capital if we trade in the swings but I have tried that and it didn't work for me well.
I lost more than I gained and so I decided to hold for long term and so far it's going good.

I think what you want is a crystal ball. In my opinion future's and options offer more than enough flexibility to maneuver your position exactly how you want. To use them at their full potential you need knowledge and practice.

To manage your Bitcoin stack against price swings try to set yourself a stop-loss and re-enter area. You need a plan, a strategy whether you are a trader or a long-term investor. 😉

To be honest, personally, I don't try to manage bitcoin price risk except the way of holdings. That means I always hold my bitcoin when I see it did go down a little bit. and wait for the time when it will come back. But I believe it may be a very weak way to recover lose or reduce risk.

Btw I really like your concern to know the people's opinion in this case. keep ahead and build your platform better.

Yes, that's one of the ways, but in such case you also lose (even though you can estimate how much you can lose), but what if the price slips and passes your stop limit without getting executed? Especially with flash crashes (which increase in frequency due to algo-trading activity (not only in crypto, but also stocks)) - stop limits typically don't save people. As for regular trading activity, it might be good, but in long-term holding BTC, wouldn't using call / put option be beneficial?

the topic is a little bit deep, but to answer the question "how do you manage bitcoin price risk" well there always a feature in exchange called stop limit option well to manage the risk in bitcoin i always set stop limit option so if i sleep and the price crash in few hours while i'm sleeping well at least i already jump out of the crash.

Sure, DCA is very common easy to implement, and relatively cheap way to actively managing your portfolio of assets / investments. However, based on history, other portfolio management strategies perform better than DCA. For example by simply implementing different ways of rebalancing portfolio, depending on market stage, you can get way better results than with DCA. And that's not to mention different types of financial products or more advanced financial strategies.

Here you can learn more about different "easy" ways of dynamic portfolio management strategies (buy&hold, constant proportion, constant mix) from Stanfrod: https://web.stanford.edu/class/msande348/papers/PeroldSharpe.pdf


You are absolutely correct about the true purpose of BTC. However, two points to be made - 1) we don't know what Satoshi had actually in mind (maybe it was a smart way to create new asset for trading? (I know sounds ridiculous, but it's possible)), 2) even with traditional currencies (USD, EUR, JPY, CNY, SDR) and commodities (gold, silver, etc.) - they are not created for making anyone rich... but because of supply & demand imbalances and market inefficiencies - they will eventually make someone super rich, and someone super poor. Same with Bitcoin. So it's like when you fall down in river, and just lay there and say "whatever happens is okay, otherwise it's too complicated trying to get out / to survive / not to "earn" / dealing with side-effects".

Furthermore, there's a great article about Bitcoin tech/economics together: http://coinmetrics.io/bitcoin-an-unprecedented-experiment-in-fair-distribution No matter what Satoshi's vision was, this is the reality that took place, and people will either suffer from side-effects (eventually they become the main effects), or will take active role in managing own wealth and earn/lose with it.

People are mistaking the purpose of bitcoin and that upsets a lot of people when the price drops. The purpose of bitcoin is not to make you rich, it never was. Do you really think satoshi created bitcoin so that you can get rich from it? That was never the case and some people assume that is the thing that makes bitcoin great. The real idea was something totally different but the idea made it so great that everyone wanted it and when people wanted it the price went higher as well, which made bitcoin something to get rich, it was like a side effect of bitcoin instead of the main purpose.

However that side effect was so strong that sometimes people started to use it as the main thing and this is why we have topics like these. If you are afraid of the price, do not get involved at all because you are not going to like it at all.

I do DCA and it helps me get better results in the long run. Obviously if you end up buying at low and selling at high you are going to make a much much bigger profit, this way you are buying from low but buying from high as well and you end up with some average price, but this works out much better when price falls and you do not lose too much money compared to other people who constantly bleed out losses during the same period.

If you learn what DCA is and try to mimic that for a long period of time, you will definitely drop the risk to a very low level as well. https://academy.binance.com/en/glossary/dollar-cost-averaging . Check this out, it is from binance so you know it is a good source and you could learn everything you need to learn about DCA from here.

I do agree with every point you made, except for only one "Holding is the most effective way to manage the risk the volatality" - forever HODLing is de-facto taking the entire price / market risk without any active participation or management. It's like as if investment funds would "buy a company / stock... and just watch". Yes, it's the way to get rid of risk of losing money on trading, but it assumes you gonna live for 100 years and will wait for BTC to reach whatever is promised. Even in that case actually if / when BTC becomes $100,000 or $1,000,000 per 1 BTC, the actual purchasing power of $100,000-1,000,000 might be same with today's $0.10... So your 1 BTC at that point might be able to buy you what you can buy today with 10 cents. As we cannot know the future, irrespective of personal beliefs about value of an asset, all possibilities are possible in the future.



True, but imagine if after $10k, market never corrects again, and you keep watching it as it approaches your "to be $1,000,000". But yes, you are very right that many people are losing the game because of greediness... that's the human nature. With the rest, I believe you said everything very correctly.

If I have 10K usd came from 1k dollar investment. I totally sell all my portfolio and wait until a new crash happens again. The reason why many traders are losing their trades is because of greediness. We feel how easy it might be when we experience a win streak towards our buy and sell method. In result, we think inconsistently making a bad decision from our trades. Cryptocurrency market is really volatile, you may become millionaire today or homeless for tomorrow. In order to become successful, we must incorporate correctly our strategy, emotions into a consistent trades.

Holding is the most effective way to manage the risk the volatality of the market brings but it isn't as easy as many people make it seem, the example you used above is a perfect scenario (although highly exaggerated) of what holders go through especially as you can't totally ignored the market as the news is always in your face. Every price movement is been discussed which makes you always monitoring your portfolio. The altcoins market is what could possibly give you the example you highlighted.


Not everything, the fact that the market moves in cycle of ups and down is certain and with that knowledge you can work on the perfect strategy to deployed in managing of your risk assuming you're not into the idea of holding.

Small capital shouldn't stop you from actively managing money Long-term capital growth is usually through small but stable and continuous compounding of returns.
Why you wouldn't use options for example (among other ways) instead of spending on transaction fees, spreads, etc. by changing BTC<->USD?




You are absolutely correct about all points. I am preparing a long-read post about the topic you mention that with most (not all though) derivatives you can quickly get liquidated, but if common people would have a proper way to avoid that, while hedging the downside somehow, they might be engaging more actively in risk management. It's like with Picasso paintings - you might believe in it or might not, might believe in long-term value or not, but you probably gonna take a good care of it to make sure nothing deteriorates its value.




Predictions are always wrong. The efficient market hypothesis (EMH) dictates that any available information is already priced in the market prices, so if someone says "BTC will go up / (down) by X due to Y" - it's already in the price when you open terminal to check it. And with chaos theory, it becomes worse that any second someone might say / do something new, and the price might change grammatically - and this wasn't priced in the market before as was not known, thus no prediction could foresee that. But yes, playing with emotions (especially of others) and finding market inefficiencies can be a good source for earnings.




True, but you never know when is "the dip" comes.





I know that futures are not innovative at all That was my point that crypto-market virtually has nothing now for properly managing risks - futures, swaps, perpetuals, options, and... that's all?
As for the van - you still will be doing some maintenance, right? Otherwise it will be broken pretty soon.

Futures are not so innovative. People are hedging sugar, wheat, etc. from centuries. https://en.wikipedia.org/wiki/Futures_exchange

Most of the time, I'm looking at crypto as crypto and not comparing the USD value. It's like buying a working van. Do you look for its current USD value daily?

When I need to hedge against USD anyway, I'm using Bitmex.

I think the easiest way to manage bitcoin price risk is to answer the most easy questions about bitcoin investment, why do you hodl bitcoin? is it for long term (years to come) or to take profits for the short term (within 2 weeks to 3 months); This decision will help you to know that the best advantage is to buy bitcoin during the dip(limiting your risks) and then you sell when it experiences price hikes. BUT YOU HAVE TO BE CERTAIN WHAT YOU WANT with bitcoin to aid your decision making.

In crypto, everything is uncertain. And it depends on how we manage the assets that we have. I myself am still focused on being able to control my emotions and also do not easily believe all predictions especially those that don't make sense. I do day trading when the market is green. However, if it is red I choose the safe path with hold. And indeed, you will rarely see the market so you don't panic.

It's more not pleasant to see a liquidated position rather than having a high amount value in future. BTC is for long term and everybody holding it is looking for the future value. Why they will swing trade using futures and perp while they can have a sure profit in the long run without any risk of being liquidated.

Applying the principle of pro trader to BTC holder is a bit questionable. Because the majority of BTC holders knows that Bitcoin is a phenomenal investment especially those who enter at a very low price.

Unfortunately, you are correct. As long as there is "human nature", there will be all the kinds of scams where someone earned their worth in the hard way, while others trying to just scam them or steal everything. Shitcoins are just one of many other ways to do so.

That's the reason we at as.exchange don't issue any kind of own token / currency, etc. (not advertising, but just mentioning). No need to issue new shitcoin when it doesn't serve any real purpose.



Just holding is a good strategy overall too. But from financial theory by using "passive investment strategy" (just buy and hold), you will earn just what the market earns at best. However, with "active investment strategy" (actively managing investment portfolio, rebalancing, investing in other things, protecting the downside, etc.) you might well beat the market and earn more. However, you also can earn less.

For "selling high and buying low", actually it's not purely about believing or not in BTC future, it's simply exploiting market inefficiency. Like our CEO who does strongly believe in BTC, but he firstly bought BTC @ around $1.4-1.6k, and then sold all in 2018 @ $19.5-20k, and later re-entered in 2020 @ $4.8k. Being able to identify good opportunities and taking advantage of them is probably one of the reasons we are able to launch our current company. So just imagine what you could do, if you would be actively managing your price risks also

To be honest, I don't manage any kind of price risk. Just holding them will also provide a good return. Besides, lending can be profitable as well if you are really concerned about accumulating Bitcoins. Otherwise, selling high and buying low may not be worth it if one strongly believe in Bitcoin from future perspective.

Don't expect them to be gone any time soon. If anything, the number of shitcoin projects is actually likely to increase as Bitcoin(and the cryptocurrency space) grows more as time goes.

To simply put, scams have existed since the dawn of humanity, and it will continue to exist until the end.

I see your point. In that case, when you actually use BTC to make payments (what it was created for initially), then definitely derivatives are not the best approach to do that. Even though, as current merchants index their BTC prices to market rate in US$, it could benefit to hedge risks, if you are holding like hundreds or thousands of BTC. But yes, if you are someone who cares about privacy, anonymity and independence, then holding crypto in own wallet with priv keys is the only and best solution.


For these parts - totally agree. But unfortunately as years pass, the number of shitcoins just keep increasing. Still very surprised to see that someone truly invests in new ICOs/IEOs/etc. (I don't mean the speculators & P&D groups). Until the market is cleared, probably many more years will pass, as even exit-scam projects' tokens still might be tradable, even though with collapsed liquidity. Just like some people knowingly what they do, invest in ponzis & pyramids with the thoughts that they are the smartest ones and can do what others couldn't. Until then, I think derivatives could be beneficial to that market as their main purpose is price reveleance, information discovery (spot price will react slower than derivative), and risk transfer from those who don't want it to the risk seekers, which can improve liquidity and opportunities to exit illiquid shitcoins.

Sorry, didn't know - will keep in mind for future replies.