In times of uncertainty, the smart money is always keen to look at opportunities which could protect their downside risk. The term “hedge your risk” was coined pretty much based on this idea. Investors have been waiting for the massive pullback or correction in the current bull market which has been triggered since the financial crisis. Yet, there are no signs of this coming to an end. However, when the markets start to show some cracks, the smart money not only reads the cracks in the bull market well before anyone else, but also takes steps to protect their downside risk. In other words, when you see the ingredients of a recipe on the chef’s table, you know that he is going to cook that recipe. What you do is prepare yourself to have his food.
Bitcoin, despite its volatility, has taken a prominent place when it comes to a risk-off trade during the substantive volatility time in the market. North Korea has played more than a fair role in escalating the geopolitical tensions and we have seen the price of Bitcoin skyrocketing on the back of the heightened geopolitical tensions. The cryptocurrency market is a largely unregulated market (although a number of central banks are actively looking to regulate this market, which would not only reduce the volatility but also strengthen the demand equation). After the recent missile test by North Korea, the U.S. stepped up the efforts and pressured the United Nations to ranch up the criteria of sanctions on North Korea. As a result, the UN passed a resolution under which imports of refined petroleum products will be cut to 2 million barrels a year and a ban of textile exports will take place. The sanctions are designed to limit the country’s ability to get any hard currency.
However, these sanctions are not going to halt Kim Jong-un from his nuclear program and there are no hopes of him coming to the negotiation table. In fact, the country has stepped up the efforts in securing more bitcoins along with many other cryptocurrencies. North Korea has an army of hackers who are constantly targeting South Korea, the hectic trading hub for cryptocurrency. The strategy would aid the country in bypassing many trade restrictions which also include the new sanctions. Moreover, the massive popularity of the cryptocurrency gained Kim’s attention and for crypto traders, this represents an opportunity. A higher demand for cryptocurrency would only boost its price.
We do know that bitcoin is up nearly 358% YTD and I do think that the currency could touch the level of $5,500 by the end of this year. Given the volatility around cryptocurrency, it is now possible to simply hedge your risk. A number of brokers are providing options for Bitcoin CFD trading and are providing the leverage of 25:1. The simple strategy for Bitcoin holders to hedge their risk if they are concerned about a downward move could be to sell Bitcoin CFDs to protect their downside (any move to the downside would be profitable because one would have a short position).
Crazy as it sounds that you can now use Bitcoin CFDs to protect your investment risk, it could be the answer for those who are worried about the cryptocurrency market.
https://www.forbes.com/sites/naeemaslam/2017/09/12/sanctions-on-north-korea-could-boost-bitcoin-demand/#45db2c59537c
