I spent some time earlier this year thinking about hedging against price drops. There are some obvious possibilities people have mentioned:
1. Sell some bitcoins for fiat currencies. One big problem is this usually requires an invasion of your privacy. For example, many exchanges require a lot of information before you can use them and especially before you can withdraw fiat.
2. Sell some bitcoins for a fiat balance and leave it as a balance on the exchange. When you want the funds back, exchange back to bitcoin and withdraw. This is essentially what Coinapult locks do, but you could also use an exchange that doesn't require KYC for crypto-only use. One big problem is that the exchange could go out of business or simply refuse you access to your funds.
Using a little basic algebra, I described a way multisig could be used to buy and sell volatility risk.
https://bitcointalk.org/index.php?topic=1102062Essentially Alice and Bob can both put $100 worth of bitcoins into a multisig address where each has one private key. The same tx could have an OP_RETURN with a contract they both signed that says: Alice gets $100 worth of these bitcoins next week and Bob gets the rest. (If the price drops by more than half, then it's a "black swan" event and Alice gets all of it, but it's worth less than $100.) Unless there's a "black swan" event a week later Alice will have $100 worth of bitcoins. Bob would profit more if the price went up and lose more if the price went down. Essentially, Alice would be selling her volatility risk to Bob.
The advantage of this is that you don't give up total control of your bitcoins. A disadvantage is that if either Alice or Bob is incapacitated, the funds are lost. This disadvantage can be mitigated by having a 2-of-3 address where the third key is essentially an escrow agent, but then you have to hope the escrow agent isn't secretly either Alice or Bob.
This is all theoretical. I was hoping if I described it someone else would implement it. Lately I've been thinking about doing it myself. I'd probably do it with Clams instead of Bitcoin though. Clams has support for a "speech" part of a tx, and a node for Clams can reasonably be run on a VPS.
