Hedge against BitCoin collapse

[toomsie]

I am looking for the perfect edge against a bitcoin collapse. My biggest fear is selfish mining or some
other hack on the system. Not so much worried about bears, volatility and governments.   

[1715594471]

1715594471

[ssinc]

USD

[toomsie]

silver

USD and silver doesn't feel like a hedge to me. I thought someone would say Money-transfer companies, Visa, and PayPal. Their shares are going to be undervalued because of the threat of bitcoin. However,if bitcoin go tits up then those companies shares will go up because the direct competition is no longer there.

[beetcoin]

silver

USD and silver doesn't feel like a hedge to me. I thought someone would say Money-transfer companies, Visa, and PayPal. Their shares are going to be undervalued because of the threat of bitcoin. However,if bitcoin go tits up then those companies shares will go up because the direct competition is no longer there.

why wouldn't gold and silver be a hedge? i would assume that many people who hold bitcoins want something that has store of value, something that cannot be created out of thin air... so they'd choose gold/silver.

as of right now, i don't think bitcoin is an eminent threat to paypal.

[conspirosphere.tk]

a basket of alt.coinz
or BBB (booze, blow, and bitches -the unholy triad of moneyness: if you can convert anything in them, it's money)

[chmod755]

why wouldn't gold and silver be a hedge? i would assume that many people who hold bitcoins want something that has store of value, something that cannot be created out of thin air... so they'd choose gold/silver.

I agree. If anything happens to Bitcoin and it 'collapses' - it doesn't mean that other types of online payment will be successful.

[maurya78]

A basket of real commodities such as good/silver/platinum

[coinft]

silver

USD and silver doesn't feel like a hedge to me. I thought someone would say Money-transfer companies, Visa, and PayPal. Their shares are going to be undervalued because of the threat of bitcoin. However,if bitcoin go tits up then those companies shares will go up because the direct competition is no longer there.

If Bitcoin crashes because Bitcoin 2.0 comes along Visa won't look good.

[NUFCrichard]

Hopefully PPC would be a good hedge, unfortunately Ripple too.

[LiteCoinGuy]

i heard that there are already trading options ("short" and "long" etc) but i cant recognize that service. but as time goes by, there will be more online services, that offer that stuff.

[toomsie]

i heard that there are already trading options ("short" and "long" etc) but i cant recognize that service. but as time goes by, there will be more online services, that offer that stuff.

That would be good. Either that or insurance or bookmakers that pay out in the event of a bitcoin collepse.

[Johnny Bitcoinseed]

Best hedge is food etc.  Next some cash as well as gold and silver.  Spread your investment around.  One goes bust, you have the others.

[subcoin]

It seems there is misunderstanding of the term hedge

Gold, silver, food, fiat and clothes are not "offsetting positions" to Bitcoin.
Diversifying your investments is always a good idea.
But diversifying and hedging are not the same.

Hedging BTC would be to invest into something that would go up when BTC goes down.
Hypothetical example would like this: If Ripple was as popular as Bitcoin and BTC were to collapse,
to hedge BTC you would buy Ripple. Because when BTC collapses, Ripple would go up.
In the real world, I cannot think of anything that would truly hedge BTC.

[balanghai]

Perhaps equipments. May it be business machines or any other useful equipments to earn cash. That's the best thing to procure. As the saying goes that give a man a fish and he shall eat for a day, teach a man how to fish and you feed him for a lifetime.

[beetcoin]

It seems there is misunderstanding of the term hedge

Gold, silver, food, fiat and clothes are not "offsetting positions" to Bitcoin.
Diversifying your investments is always a good idea.
But diversifying and hedging are not the same.

Hedging BTC would be to invest into something that would go up when BTC goes down.
Hypothetical example would like this: If Ripple was as popular as Bitcoin and BTC were to collapse,
to hedge BTC you would buy Ripple. Because when BTC collapses, Ripple would go up.
In the real world, I cannot think of anything that would truly hedge BTC.

why would gold and silver not be a hedge to bitcoin? assuming that many people put money into BTC due to the debasement of paper notes, the people who would be interested in BTC would go to gold/silver/oil instead.

[Vycid]

Don't we have Bitcoin put options yet?

[werauchimmer]

"PayPal" as a hedge is probably a bad idea. You assume that Bitcoin is their biggest competition, which it simply is not. Opening of Amazon payments is, and that is something that has nothing to do with BTC.

I myself would hedge in a mix of FIATs. Than again I see BTC as a game, not as a political tool to change the global lifestyle. :-)

[Vycid]

"PayPal" as a hedge is probably a bad idea. You assume that Bitcoin is their biggest competition, which it simply is not. Opening of Amazon payments is, and that is something that has nothing to do with BTC.

I myself would hedge in a mix of FIATs. Than again I see BTC as a game, not as a political tool to change the global lifestyle. :-)

PayPal is also a wholly owned subsidiary of eBay, so more importantly than being a bad idea, it's not possible.

If you're gonna go down that road, you'd be better off buying out-of-the-money LEAPS on Western Union (WU).

But as you point out, the market does not yet consider Bitcoin a threat.

[werauchimmer]

You are of course right, ebay marketplaces and Paypal are both part of ebay Inc.
However, if you look at the profit each of the parts of ebay Inc, then PayPal is the biggest revenue driver. :-)

In the single important part we agree though: Not an option. :-)

[p2pbucks]

there's no hedge

[MelodyRowell]

The biggest hedge is Litecoin!!!

[AnonyMint]

Don't we have Bitcoin put options yet?

That would be the only way to hedge it if you were sure the options wouldn't be insolvent in that case.

All the other suggestions are not a hedge because Bitcoin is not yet large enough to be inversely related to them.

Litecoin is probably not a hedge since most everything that affects Bitcoin also applies to Litecoin.

Another altcoin could be a hedge, but which one is viable if Bitcoin is hacked?

More likely than not if Bitcoin is hacked or there is a loss of confidence, it won't happen instantly but rather an evolution to a new altcoin which illuminates that Bitcoin is inferior. (I believe I am predicting an imminent future, you will soon call me a prophet)

[calian]

Someone mentioned peercoin (PPC). I do see it as a hedge in case bitcoin drags its feet too long in implementing proof of stake. Obviously POS in bitcoin would have to be a bit different since the 21,000,000 cap is inviolable. Ripple is no threat at all that I can see. It has the same weaknesses as Liberty Reserve, e-gold, etc. plus its own unique problems. When you read the articles saying to buy gold/silver remember these are products people get paid to sell you. No one makes a living telling you to hold cash but in deflation it is king. Also in 20 years they could be mining the asteroids which are chock full of gold, platinum, etc. I see this as very long-term bullish for BTC.

[subcoin]

why would gold and silver not be a hedge to bitcoin?

Would gold or silver go up when Bitcoin crashes?
No, they will remain at the same price.
Both are excellent choices to diversify your investments.
But, technically, they are not a hedge to Bitcoin.
I'm sorry for being a pain in the ass, but people misuse the term hedge.   

Can you think of anything that would go up in price when BTC crashes,
AND it would go up BECAUSE the BTC crashes?
If you find something like that, THAT would a hedge to BTC.
Everything else is just diversification of investments, not hedge.

[mindragon]

I am looking for the perfect edge against a bitcoin collapse. My biggest fear is selfish mining or some
other hack on the system. Not so much worried about bears, volatility and governments.   

Bitshares aims to do that. Protoshares are almost all mined out. http://invictus-innovations.com/

[Sage]

Litecoin!

Look at the charts.  When Bitcoin is in it's bubble cycle, move to Litcoin.  When Bitcoin corrects, move back to from Litecoin to Bitcoin.

In other words, buy the undervalued crypto.  Right now Litecoin and Bitcoin are the only real players.

[LiteCoinGuy]

Don't we have Bitcoin put options yet?

heard the same....but what was the name again  


 

[lnternet]

If BTC goes down due to some network instability or government intervention, an alt-coin might eventually take it's place. That alt-coin may not exist yet, but a basket of all current alts may be seen as a hedge in this scenario.

If BTC goes down due to it just not being practical, and no alt-coin able to do any better, I don't see a way to hedge that. Perhaps some things can partially fill the hole BTC leaves, which would count as a hedge, but not sure what that would be. (I guess that's your questions )

[AnonyMint]

I agree with the level-headed rationality in the recent posts by subcoin, Sage, and Internet. However, I have not verified that claimed relationship with Litecoin.

I am not sure if any of the altcoins are viable enough (maybe Litecoin is?) to really trust as a replacement. My problem with Litecoin is the only thing it really changes is that GPUs can mine it. Seems it would be subject to most of the same pitfalls that could befell Bitcoin.

If we are hedging against market saturation, that would be a stronger rationale for Litecoin. But an altcoin needs a compelling use-case.

[duke1839]

Hedge against Bitcoin collapse:

How about BOFI (NASDAQ)?

They are a relatively small bank headquartered in San Diego, CA that is trying to be an online bank to compete with the traditional branch model bank.


Or you can buy a stock which may benefit from Bitcoin going mainstream:

Consider TSM (NYSE).

A Taiwanese semiconductor company which may benefit from increased mining activity.


I do not own shares in either company.

[Omikifuse]

There is so many hedge against BitCoin, "anything else other then Bitcoin"

[lucaspm98]

 Some precious metals and USD will help, but there is no perfect hedge at this time IMO.

[Corenin]

USD, gold and Litecoin are good hedge against BTC

[indianplayers]

Gold, silver is good hedge

[deisik]

A basket of real commodities such as good/silver/platinum

If you aren't talking about "paper" precious metals, those are not very convenient as a store of personal wealth
If you are, then in the case of some apocalypse you will get nothing...

[deisik]

There is so many hedge against BitCoin, "anything else other then Bitcoin"

This equals to saying that there is nothing that could be used as a hedge against Bitcoin. Hedge by definition means strong negative long-term correlation, there's none such presently. Bitcoin is not just a new kid on the block but it is entirely new creature ("new paradigm", as it were)

[toomsie]

there's no hedge

Most likely you are correct.  A perfect hedge is where a losing scenerio is unlikely because the death of one market would mean the growth of another..  I looked at a few possible suggestions and I might combine a few to cover myself the best way I can.  

[AceCoin]

drugs

[Bullion333]

What about a BTC options trade or sorts, there must be some sort of financial product whereby you can hedge i.e go short and cover your long BTC exposure??

Like a BTC put option?

---------------------

Update; after a quick search on google I came across this:  http://btclevels.com/   might be of interest or is there an alternative?

[mindragon]

What about a BTC options trade or sorts, there must be some sort of financial product whereby you can hedge i.e go short and cover your long BTC exposure??

Like a BTC put option?

---------------------

Update; after a quick search on google I came across this:  http://btclevels.com/   might be of interest or is there an alternative?

As soon as it is available, bitshares aims to do just that. Protoshares are being mined now for that. http://bitsharestalk.org/index.php?topic=13.0

[AlgoSwan]

NMC would be a perfect candidate for BTC hedge.

[Bullion333]

What about a BTC options trade or sorts, there must be some sort of financial product whereby you can hedge i.e go short and cover your long BTC exposure??

Like a BTC put option?

---------------------

Update; after a quick search on google I came across this:  http://btclevels.com/   might be of interest or is there an alternative?

As soon as it is available, bitshares aims to do just that. Protoshares are being mined now for that. http://bitsharestalk.org/index.php?topic=13.0

I think there is something very interesting in the bitshares concept. Although I, and I think many other people, would like more of a "vanilla" solution. That is, a straightforward option ( call and put ) contract based on an aggregate strike price on Mtgox, bitstamp and other exchanges. The contract length should be for at least a few months - this is where btclevels.com falls down as the binary contract length is so very short. As bitcoin is unregulated and not traded on an open exchange the option premium should be low.

The price of BTC is so volatile as the currency matures people will absolutely need products like this to mitigate price risk. I am new in taking an active interest in BTC although have been aware of the currency since 2011 after reading a New Yorker article. http://www.newyorker.com/reporting/2011/10/10/111010fa_fact_davis

Personally I am really surprised their is not a product in that hedges bitcoin price risk?? 

[kkaspar]

The perfect hedge against bitcoin collapse would be an another cryptocurrency. If the crash begins and enough people would fall into LTC for instance, then a new bubble would start forming there that would attract most of the past BTC investors. Then it would be a mater of days when most of the value would return from LTC to BTC. BTC would keep the bigger part of it's original value and would even stay attractive to new investors. When BTC will fall into USD/EUR, then the investors won't touch BTC for months, because the idea of cryptos seemed to fail.
BTC has to have supporting cryptocurrencies, because otherwise it is looking for support from fiat currencies. And the financial system that rules fiat, does not exactly want BTC to succeed and they will try to use the strenght of their money to break the cryptocurrency idea as a whole. Only way for cryptos to survive the fight against fiat is when they support eachother and be autonomous enough from the traditional monetary system.

The people who speak for bitcoin, should promote more of altcoins, because currently we have this "nr.1 and none" situation that is very unhealthy for the entire process of cryptocurrency evolution.

[yogg]

I am looking for the perfect edge against a bitcoin collapse. My biggest fear is selfish mining or some
other hack on the system. Not so much worried about bears, volatility and governments.   

there

http://www.avatrade.com/trading-info/range-of-markets/bitcoin

make a deposit and go short on BTC

[mgio]

Buy HedgeCoin. It's designed to go up when Bitcoin crashes and go down when Bitcoin goes up.

[chaosknight]

USD and Silver would be the best hedge against Bitcoin.

[MaxBTC1]

Hopefully PPC would be a good hedge, unfortunately Ripple too.

Alt coin wise PPC is your best bet.

In other asset classes you want to look at USD, Gold, Silver.

[CMMPro]

i heard that there are already trading options ("short" and "long" etc) but i cant recognize that service. but as time goes by, there will be more online services, that offer that stuff.

That would be good. Either that or insurance or bookmakers that pay out in the event of a bitcoin collepse.

You are over invested if you are so worried about it.
If you don't believe in what you are investing, or are worried that it is too risky, then bitcoin IS too risky and is not the investment for you.

There is no perfect hedge....have a little of this and a little of that to back up what you are risking.
I have my stocks, bonds, precious metals, real estate, toys, and a certain "who gives a shit" percentage I play with in bitcoin.

Has it caused me the occasional bit of lost sleep? So far only during the April crash, and only because it was an exciting time not because I was afraid to lose.

[DeathAndTaxes]

The perfect hedge against bitcoin collapse would be an another cryptocurrency. If the crash begins and enough people would fall into LTC for instance, then a new bubble would start forming there that would attract most of the past BTC investors. Then it would be a mater of days when most of the value would return from LTC to BTC. BTC would keep the bigger part of it's original value and would even stay attractive to new investors. When BTC will fall into USD/EUR, then the investors won't touch BTC for months, because the idea of cryptos seemed to fail.
BTC has to have supporting cryptocurrencies, because otherwise it is looking for support from fiat currencies. And the financial system that rules fiat, does not exactly want BTC to succeed and they will try to use the strenght of their money to break the cryptocurrency idea as a whole. Only way for cryptos to survive the fight against fiat is when they support eachother and be autonomous enough from the traditional monetary system.

The people who speak for bitcoin, should promote more of altcoins, because currently we have this "nr.1 and none" situation that is very unhealthy for the entire process of cryptocurrency evolution.

LTC uses the same cryptographic primitives so if BTC is collapsing due to a cryptographic failure then LTC is dead too.  LTC uses the same protection method (proof of work) and although it uses a different algorithm if some entity has decided to spend hundreds of millions of dollars to destroy BTC (and destroy their investment at the same time) then they aren't going to forget about LTC.  LTC dies too.   IF BTC is collapsing because of unjust legal and regulatory action then all virtual currencies are in the crosshairs and LTC is dying too.

LTC is too much of a clone to provide any meaningful benefit as a hedge against a failure of BTC.  While I am not an advocate of PPC for a variety of technical reasons at least in one of those three scenarios PPC is different enough to provide a meaningful hedge.

Note: I own no LTC or PPC.

[Thenen]

Gold would be a good choice...

[Undefeatable]

Not gold but GoldCoins...

[DeathAndTaxes]

Not gold but GoldCoins...

Not that is just stupid.  I will take the one which hasn't lost 80% of its purchasing power.

[toomsie]

i heard that there are already trading options ("short" and "long" etc) but i cant recognize that service. but as time goes by, there will be more online services, that offer that stuff.

That would be good. Either that or insurance or bookmakers that pay out in the event of a bitcoin collepse.

You are over invested if you are so worried about it.
If you don't believe in what you are investing, or are worried that it is too risky, then bitcoin IS too risky and is not the investment for you.

There is no perfect hedge....have a little of this and a little of that to back up what you are risking.
I have my stocks, bonds, precious metals, real estate, toys, and a certain "who gives a shit" percentage I play with in bitcoin.

Has it caused me the occasional bit of lost sleep? So far only during the April crash, and only because it was an exciting time not because I was afraid to lose.

I am not too worried about losing my money because I am in for the long run.  Who would worry about losing a few thousand dollar with the chance to be upper middle class to stinking rich. When the April crash happened I wasn't to worried, just disappointed that I didn't do any active trading.

[AnonyMint]

The perfect hedge against bitcoin collapse would be an another cryptocurrency. If the crash begins and enough people would fall into LTC for instance, then a new bubble would start forming there that would attract most of the past BTC investors. Then it would be a mater of days when most of the value would return from LTC to BTC. BTC would keep the bigger part of it's original value and would even stay attractive to new investors. When BTC will fall into USD/EUR, then the investors won't touch BTC for months, because the idea of cryptos seemed to fail.
BTC has to have supporting cryptocurrencies, because otherwise it is looking for support from fiat currencies. And the financial system that rules fiat, does not exactly want BTC to succeed and they will try to use the strenght of their money to break the cryptocurrency idea as a whole. Only way for cryptos to survive the fight against fiat is when they support eachother and be autonomous enough from the traditional monetary system.

The people who speak for bitcoin, should promote more of altcoins, because currently we have this "nr.1 and none" situation that is very unhealthy for the entire process of cryptocurrency evolution.

Agreed all, except also agree with DeathAndTaxes that LTC offers no significant difference, other than it can't yet be mined by ASICs. GPUs are 30X faster than CPUs at mining on Bitcoin and only 15X on Litecoin, so Litecoin didn't even really solve the CPU-only prize. LTC has faster transactions at 2.5 minutes versus 10 minutes per block. I don't have an opinion on whether PPC is a viable investment, other than I explained in the Problem with Altcoins thread why I think PoS can never be secure. Although I believe my hypothesis is correct (about the input entropy), I could  be proven wrong.

I haven't done the analysis to verify, but someone claimed it works to buy LTC when it is undervalued relative to BTC and vice versa, I guess based on the trendline ratio.

[AnonyMint]

I am not too worried about losing my money because I am in for the long run.  Who would worry about losing a few thousand dollar with the chance to be upper middle class to stinking rich. When the April crash happened I wasn't to worried, just disappointed that I didn't do any active trading.

The key to sanity and risk management is as you said diversification and thus don't buy all at one time. Average in over time, so you have cash to make purchases on flash crashes. However, everyone is trying to do this now, so the flash crashes have shorter and shorter duration. You could see Risto's thread where they try to calculate when to buy based on being above or below the exponential trend line.

[marcotheminer]

As mentioned before, either fiat (USD) or Gold and Silver

[AnonyMint]

As mentioned before, either fiat (USD) or Gold and Silver

As has been pointed out upthread, you are referring to diversifications, not to hedges. Those are not proportionally inversely correlated to BTC, i.e. if BTC crashes to 1/10 value, the value of your USD does not increase by 10 times.

Normally a hedge is used to maintain a position in an asset, while guarding against a catastrophic loss of value.

[User705]

A structured sale would be a hedge.  Something along the lines of selling BTC at a 20% discount to current price deliverable in 30 days or however long you wish coupled with an option to buy back at 120%.  Pricing may need to be adjusted depending on what kind of interest that would generate.

[JekyllIsland]

Gold and silver for the win. More specifically bitcoin specie made by new liberty dollar. Some very nice looking pieces, not to mention the future resell value that will most likely be attributed to a rising bitcoin and silver price.

[Jumpy]

Don't we have Bitcoin put options yet?

Most of the existing puts that I've seen are settled in BTC, so it may be useful for short term market movements but not really helpful if bitcoins become worthless.

[MarketTime]

Ok lets see, if Bitcoin collapse Litecoin would be the winner.. So Litecoin...

[AnonyMint]

Ok lets see, if Bitcoin collapse Litecoin would be the winner.. So Litecoin...

Apparently you did not read the thread before you posted?

[Bullion333]

I think there was talk about IG Index in the UK offering a binary options product

http://www.afr.com/p/blogs/markets_today/ig_offers_options_for_clients_champing_D11zEY3AVo4JZtVOdERuOL

Have not heard much about this, perhaps because the spread was massive.

Any one have any experience with this ?

[LiteCoinGuy]

take a look at

www.plus500.com/Instruments/BTCUSD


maybe its possible there.

[Skinnkavaj]

The biggest hedge is Litecoin!!!

[Stephen Gornick]

I own no LTC or PPC.

Just for posterity, I believe that at one time you had offered to borrow LTC so that you could sell it to have a short position.  I don't know if you had completed that transaction but disclosing that you have no position now might not be an objective way of describing your position.

For the record, I too own no LTC or PPC, but at some point in the future would possibly consider LTC.  My criteria for a proof-of-work based crypt coin is simply is whether or not sufficient hashing capacity exists.  If (when) a Scrypt ASIC gives the litecoin network's total hashrate a boost such that a 51% there too becomes uneconomical then I might be willing to acquire some LTC.

My biggest fear is selfish mining or some other hack on the system.governments.   

I would say that going short on futures contracts would be one such hedging opportunity that would pay off on a Bitcoin collapse.  The problem with the futures contracts on ICBit, however, is counterparty risk such that your profitable position can be closed prior to settlement date without you seeing the full gains that you would were you able to hold to the settlement date.

[stash]

Ripple. Global payment network.

[cdog]

The biggest threat to bitcoin right now is the Bitcoin Foundation itself and companies like the one Yifu started:

https://bitcointalk.org/index.php?topic=333824.0

Regulation of Bitcoin will eventually kill it, the controls start as minor and then become all consuming. Thats how this game works.

[mgio]

Alt coins are NOT a hedge against bitcoin.

If bitcoin is made illegal or the US govt starts shutting down exchanges, alt coins will crash too. If there is found to be a weakness in the bitcoin protocol, alt coins will crash too.

In fact, anything that would crash bitcoin will likely also crash alt coins. They are the worst hedge ever!

People who say they are a decent hedge understand nothing about investing.

[affan]

in the future all cryp coins will die, all of us will die.., my opinion this coins make economy getting worst.., btw there are certain parties attempt to increase the power of bitcoin, of course, those who created it, the goal is to rule the world..

[deisik]

If we can't come to a consensus, we can always find the best hedge statistically (always remember that correlation is not causation)

[deisik]

in the future all cryp coins will die, all of us will die.., my opinion this coins make economy getting worst...

Is your opinion substantiated by facts or logic?
Or you just have some gut feeling there's something wrong about cryptocoins?

[AnonyMint]

I own no LTC or PPC.

Just for posterity, I believe that at one time you had offered to borrow LTC so that you could sell it to have a short position.  I don't know if you had completed that transaction but disclosing that you have no position now might not be an objective way of describing your position.

For the record, I too own no LTC or PPC, but at some point in the future would possibly consider LTC.  My criteria for a proof-of-work based crypt coin is simply is whether or not sufficient hashing capacity exists.  If (when) a Scrypt ASIC gives the litecoin network's total hashrate a boost such that a 51% there too becomes uneconomical then I might be willing to acquire some LTC.

Good to know. Thanks.

[AnonyMint]

The biggest threat to bitcoin right now is the Bitcoin Foundation itself and companies like the one Yifu started:

https://bitcointalk.org/index.php?topic=333824.0

Regulation of Bitcoin will eventually kill it, the controls start as minor and then become all consuming. Thats how this game works.

Excellent that you are awake. My group and I were discussing this in private and it is one of our motivations for creating a serious altcoin with superior anonymity.

[AnonyMint]

If there is found to be a weakness in the bitcoin protocol, alt coins will crash too.

I can guarantee you that technically that doesn't have to be the case. It might be the case with near xerox copies such as Litecoin (although Litecoin isn't vulnerable to ASICs yet, has 5X faster block times, and a more dispersed coin supply), but it won't necessarily be the case with an altcoin that actually fixes the known attacks in Bitcoin. In fact, Bitcoin is broken right now.

Btw, I am not bashing Bitcoin to try to get the price to drop so I can buy. Nor do I need people to stop buying Bitcoin in order for an altcoin to succeed (actually the opposite as it is much easier to trade BTC for an altcoin than to obtain from fiat). I may buy some Bitcoin. I believe Bitcoin's exponential price rise will likely continue for 2 years at least (although brief crashes along the way are possible). Try to not look at everyone as having a black or white position (akin to "you are with us or against us", POTUS Bush when referring to the neocon terrorism police state).

[mgio]

If there is found to be a weakness in the bitcoin protocol, alt coins will crash too.

I can guarantee you that technically that doesn't have to be the case. It might be the case with near xerox copies such as Litecoin (although Litecoin isn't vulnerable to ASICs yet, has 5X faster block times, and a more dispersed coin supply), but it won't necessarily be the case with an altcoin that actually fixes the known attacks in Bitcoin. In fact, Bitcoin is broken right now.

Btw, I am not bashing Bitcoin to try to get the price to drop so I can buy. Nor do I need people to stop buying Bitcoin in order for an altcoin to succeed (actually the opposite as it is much easier to trade BTC for an altcoin than to obtain from fiat). I may buy some Bitcoin. I believe Bitcoin's exponential price rise will likely continue for 2 years at least (although brief crashes along the way are possible). Try to not look at everyone as having a black or white position (akin to "you are with us or against us", POTUS Bush when referring to the neocon terrorism police state).

What alt coin fixes the vulnerabilities with bitcoin? That's right, NONE OF THEM DO. They are all essentially just bitcoin.

And an altcoin that addresses a single vulnerability is only a hedge against an exploit being found in that vulnerabilitiy

There still is the much larger problem of people losing faith in crypto currencies in general.

[AnonyMint]

If there is found to be a weakness in the bitcoin protocol, alt coins will crash too.

I can guarantee you that technically that doesn't have to be the case. It might be the case with near xerox copies such as Litecoin (although Litecoin isn't vulnerable to ASICs yet, has 5X faster block times, and a more dispersed coin supply), but it won't necessarily be the case with an altcoin that actually fixes the known attacks in Bitcoin. In fact, Bitcoin is broken right now.

Btw, I am not bashing Bitcoin to try to get the price to drop so I can buy. Nor do I need people to stop buying Bitcoin in order for an altcoin to succeed (actually the opposite as it is much easier to trade BTC for an altcoin than to obtain from fiat). I may buy some Bitcoin. I believe Bitcoin's exponential price rise will likely continue for 2 years at least (although brief crashes along the way are possible). Try to not look at everyone as having a black or white position (akin to "you are with us or against us", POTUS Bush when referring to the neocon terrorism police state).

What alt coin fixes the vulnerabilities with bitcoin? That's right, NONE OF THEM DO. They are all essentially just bitcoin.

So far Litecoin removes ASICs, thus making the coin more accessible to the masses.

I agree the current altcoins (except perhaps the PoS ones such as PPC) are not that much different than Bitcoin, but that doesn't mean one won't come.

And an altcoin that addresses a single vulnerability is only a hedge against an exploit being found in that vulnerabilitiy

Agreed, but an altcoin might address many vulnerabilities.

There still is the much larger problem of people losing faith in crypto currencies in general.

Agreed there is. Which is why we need better altcoins asap before that happens, so we can prove there are differences between crypto-currencies in general.

Monolithic systems (e.g. Bitcoin as the only variant with xerox copies) are inherently less resilient. In mathematical terms, they are Taleb's Antifragile.

[shutik]

I would advise to open account on https://icbit.se
They operate derivatives market in bitcoins

Good hedge would be to sell future contract(s). It will lock you rate of exchange in some point in time in the future for agreed Notional amount of BTC.
In the case bitcoin crashes you will be able to sell it at current market price.
In the case bitcoin will go up, you will lose out the difference between current market price and future rice.

[kdrop22]

I would advise to open account on https://icbit.se
They operate derivatives market in bitcoins

Good hedge would be to sell future contract(s). It will lock you rate of exchange in some point in time in the future for agreed Notional amount of BTC.
In the case bitcoin crashes you will be able to sell it at current market price.
In the case bitcoin will go up, you will lose out the difference between current market price and future rice.

I'm interested in https://icbit.se as well. However, don't they (Or any other service that sells futures) introduce a counterparty risk?
Given all the wallet/exchange services that have been hacked or disappeared. It seems not sensible to leave funds at the exchange for a few months.
Please, correct me if I misunderstood how they work.

[shadallion]

You can hedge against bitcoin on Predictious.com.  Simply bet against bitcoin exceeding X dollar amount by X date.

[shutik]

I believe you have to post only a fraction of the cost of the contact in the range of 15%
This serves as margin. In the event of the move of the spot price above margin threshold you would get margin call and if you don't post more you position gets liquidated

see https://bitcointalk.org/index.php?topic=164255.0 for unofficial FAQ

And please do your own research before investing.

[MilesJohan]

Gold and Silver would be the best hedge, I presume USD to collapse too...

[Feneusens]

Litecoin, primecoin and goldcoin.....

[Thenen]

Food, if Bitcoin collapse USD might also collapse all together....

[Sindelar1938]

One approach couple be to manage the btc% of your total net worth

As btc rises and that percentage increases, sell some btc to get back to your target

[deisik]

One approach couple be to manage the btc% of your total net worth

As btc rises and that percentage increases, sell some btc to get back to your target

And if it falls we should just buy back, right?

[Undefeatable]

One approach couple be to manage the btc% of your total net worth

As btc rises and that percentage increases, sell some btc to get back to your target

And if it falls we should just buy back, right?

That is absolutely right, average down and sell high...

[deisik]

That is absolutely right, average down and sell high...

No better way to lose your money than average down...

[whitemage]

That is absolutely right, average down and sell high...

No better way to lose your money than average down...

Sorry but I don't understand what you are trying to stay, why would it be losing for average down?

[sidhujag]

That is absolutely right, average down and sell high...

No better way to lose your money than average down...

Sorry but I don't understand what you are trying to stay, why would it be losing for average down?

might wanna hedge now $475

[cunicula]

I am looking for the perfect edge against a bitcoin collapse. My biggest fear is selfish mining or some
other hack on the system. Not so much worried about bears, volatility and governments.  

OMG... the selfish mining scare is a ridiculous farce, but hedging is not a bad idea anyways.

I hedge with PPCoin until some better version of proof of stake comes along.
PPC has security features that bitcoin lacks. Bitcoin has security features that PPCoin lacks. And therein lies the hedge.

Disclosure: I have about 70% value in bitcoin, 30% value in PPCoin, and no other coins (well a few primecoin purely for the novelty value)
  

[deisik]

Sorry but I don't understand what you are trying to stay, why would it be losing for average down?

Let's first define what we mean by averaging down!
I mean this, i.e. adding to a losing trade

[shutik]

One approach couple be to manage the btc% of your total net worth

As btc rises and that percentage increases, sell some btc to get back to your target

I like this approach as exposure hedge. Re-balance your investment periodically to achieve risk exposure to bitcoin  with desired percentage level.
Good idea to also diversify your investment among different asset classes.

[AnonyMint]

OMG... the selfish mining scare is a ridiculous farce,

Fact: (unless my logic is refuted)

Disagree. I have refuted your technical arguments on selfish-mining:

https://bitcointalk.org/index.php?topic=323988.msg3607191#msg3607191

[AnonyMint]

Food, if Bitcoin collapse USD might also collapse all together....

Fact:

USD won't collapse (any time soon) because of Bitcoin due to relative size, with Bitcoin in a the $10 billion range and USD in the multiple $10s of trillions range. Bitcoin is a flea on an elephant's arse at the moment.

[AnonyMint]

Gold and Silver would be the best hedge, I presume USD to collapse too...

Level-headed Conjecture:

USD trend (not wiggles) will likely get stronger through 2015, as capital is running from emerging markets to the reserve currency (and Euro) as the commodity bubble has peaked and China (and BRICs) is headed down due to huge imbalances. Read Martin Armstrong and Michael Pettis. India has persistent fiscal deficits and a deteriorating account balance and they are exacerbating it by launching a food subsidy program that will send their annual deficit into the high single digit percentage. (note that I am for letting 400 million suffer in malnutrition)

Gold and silver have not bottomed yet, they may bounce until next Spring, then go down for the final bottom probably under $1000 and $17. Again for same reason as the dollar strength above.

Mildly Extreme Conjecture:

After 2015, the global system will implode, then you will see gold and silver blast off.

I expect Bitcoin to have crashed from its bubble peak by then (roughly 2016 - 2020). Whether it survives or not is yet to be determined based on technical fixes to the protocol and competition.

[byronbb]

Litecoin!

Look at the charts.  When Bitcoin is in it's bubble cycle, move to Litcoin.  When Bitcoin corrects, move back to from Litecoin to Bitcoin.

In other words, buy the undervalued crypto.  Right now Litecoin and Bitcoin are the only real players.

If bitcoin suffered a technical failure then litecoin would most likely suffer it in an identical manner. 

[kdrop22]

I am posting here the possible risks to Bitcoin and strategies for dealing with them.

Risks:
a) A Technical flaw in either the network protocol or private key/public key algo is exposed.
Risk Mitigation: Alt Coins with significantly different POS/ Pow functions
b) New innovative AltCoin is introduced in the future. That takes away market share from BTC. While we don't have such a coin right now, there is likely be one in the future.
Risk Mitigation: Keep yourself well informed and invest small portion of funds into promising technologies.
c) Regulatory risk - This would affect all digital currencies.
Hedge: Portfolio diversification or gold/silver
d) Public panic/sell off - This will affect all AltCoins as most of them are traded for BTC.
Only alternative portfolio diversification.

[waltermot321]

I am posting here the possible risks to Bitcoin and strategies for dealing with them.

Risks:
a) A Technical flaw in either the network protocol or private key/public key algo is exposed.
Risk Mitigation: Alt Coins with significantly different POS/ Pow functions
b) New innovative AltCoin is introduced in the future. That takes away market share from BTC. While we don't have such a coin right now, there is likely be one in the future.
Risk Mitigation: Keep yourself well informed and invest small portion of funds into promising technologies.
c) Regulatory risk - This would affect all digital currencies.
Hedge: Portfolio diversification or gold/silver
d) Public panic/sell off - This will affect all AltCoins as most of them are traded for BTC.
Only alternative portfolio diversification.

I never know there is so much risk to Bitcoin.

[kdrop22]

I am posting here the possible risks to Bitcoin and strategies for dealing with them.

Risks:
a) A Technical flaw in either the network protocol or private key/public key algo is exposed.
Risk Mitigation: Alt Coins with significantly different POS/ Pow functions
b) New innovative AltCoin is introduced in the future. That takes away market share from BTC. While we don't have such a coin right now, there is likely be one in the future.
Risk Mitigation: Keep yourself well informed and invest small portion of funds into promising technologies.
c) Regulatory risk - This would affect all digital currencies.
Hedge: Portfolio diversification or gold/silver
d) Public panic/sell off - This will affect all AltCoins as most of them are traded for BTC.
Only alternative portfolio diversification.

I never know there is so much risk to Bitcoin.

With great risk comes great reward.

[kkaspar]

I hope some rich holders are smart enough to start a new boom in LTC when the crash comes. If there would be an another quick rise in LTC, then selling BTC to LTC would be quite attractive. This way, much of the value would stay in cryptos and BTC would recover alot quicker. If people sell to fiat, then that value will walk and there will be another 6 month low period. Only another crypto-currency could cause the value to stay behind and "inside the family". The content of this bubble could be caught and reinserted, only if the game is played the right way.
LTC would be the current winner here for just because it has a decent enough start-up volume. Technical reasons will be taken into account in the future.

[AnonyMint]

Litecoin!

Look at the charts.  When Bitcoin is in it's bubble cycle, move to Litcoin.  When Bitcoin corrects, move back to from Litecoin to Bitcoin.

In other words, buy the undervalued crypto.  Right now Litecoin and Bitcoin are the only real players.

If bitcoin suffered a technical failure then litecoin would most likely suffer it in an identical manner.  

I am thinking it is more difficult for the Litecoin to make the fix suggested by the research paper for the selfish-mining attack due to the shorter block time. Waiting for discussion on that over at hackingdistributed.com

[petersiddle98]

Litecoin!

Look at the charts.  When Bitcoin is in it's bubble cycle, move to Litcoin.  When Bitcoin corrects, move back to from Litecoin to Bitcoin.

In other words, buy the undervalued crypto.  Right now Litecoin and Bitcoin are the only real players.

If bitcoin suffered a technical failure then litecoin would most likely suffer it in an identical manner.  

I am thinking it is more difficult for the Litecoin to make the fix suggested by the research paper for the selfish-mining attack due to the shorter block time. Waiting for discussion on that over at hackingdistributed.com

You mean the selfish mining is vulnerable to all alt-coin and not only Bitcoin? Last I heard scrytp coin is safe...

[AnonyMint]

Litecoin!

Look at the charts.  When Bitcoin is in it's bubble cycle, move to Litcoin.  When Bitcoin corrects, move back to from Litecoin to Bitcoin.

In other words, buy the undervalued crypto.  Right now Litecoin and Bitcoin are the only real players.

If bitcoin suffered a technical failure then litecoin would most likely suffer it in an identical manner.  

I am thinking it is more difficult for the Litecoin to make the fix suggested by the research paper for the selfish-mining attack due to the shorter block time. Waiting for discussion on that over at hackingdistributed.com

You mean the selfish mining is vulnerable to all alt-coin and not only Bitcoin? Last I heard scrytp coin is safe...

The variant of PoW hash (e.g. Scrypt) has nothing to do with the selfish-mining attack.

Here is what I mean:

http://hackingdistributed.com/2013/11/04/bitcoin-is-broken/#comment-1126295970

And I mean that Litecoin might be less fixable for that suggested fix, than Bitcoin is. But I am might be wrong on that conjecture.

I suppose non-experts are going to have to wait for the experts to come to a consensus. I will not conclude I am correct on all matters of the selfish-mining attack even though I consider myself to be reasonably expert on the technical side. That is what peer review is for. We must wait for the analysis and discussion amongst the experts.

[AnonyMint]

I am posting here the possible risks to Bitcoin and strategies for dealing with them.

Risks:
a) A Technical flaw in either the network protocol or private key/public key algo is exposed.
Risk Mitigation: Alt Coins with significantly different POS/ Pow functions

A flaw has already been argued against PoS.

b) New innovative AltCoin is introduced in the future. That takes away market share from BTC. While we don't have such a coin right now, there is likely be one in the future.

 

[AnonyMint]

I never know there is so much risk to Bitcoin.

Don't get angry at me if I am wrong, but my analysis so far is there is very low near-term risk such as Bitcoin would overnight permanently lose its value due to a technical flaw. I am not commenting about the recent speculative runup in the price, of course if could correct at some point. (Americans not in a tax-deferred trading account at least have the problem that if they sell now, then they have to declare and pay capital gains taxes, so that is one motivation for finding a hedge)

So I guess I am saying the risk from technical flaw is not so great as I think you will have time to form an opinion and react. The attacks so far presented seem to be more of risks later when Bitcoin is much more valuable and a cartel is attempting a (even invisible and silent) takeover. Although I am not yet clear on whether the selfish-mining could be hidden, probably not.

Many people have put thought into finding weaknesses in Bitcoin, so my intuition+analysis is that it is less likely that a catastrophic flaw could be found that would destroy it overnight. We are more likely to see attacks found which were not considered because they are more insidious and applicable for those who have huge resources, e.g. it is claimed with a fix that Bitcoin would only be subject to attack with selfish-mining if attacker has 25+% of the total network hashrate.

On the regulatory risk, it depends how you think the government views Bitcoin. My extreme conjecture is they (NSA et al) view it as a good honeypot for tracking illegal activities on the public ledger which is for the most part not anonymous. So thus I don't expect negative regulatory action near-term. However, due to compartmentalization, perhaps not all government sectors (within the same nation even) possess the same viewpoint.

[whitemage]

I never know there is so much risk to Bitcoin.

Don't get angry at me if I am wrong, but my analysis so far is there is very low near-term risk such as Bitcoin would overnight permanently lose its value due to a technical flaw. I am not commenting about the recent speculative runup in the price, of course if could correct at some point. (Americans not in a tax-deferred trading account at least have the problem that if they sell now, then they have to declare and pay capital gains taxes, so that is one motivation for finding a hedge)

So I guess I am saying the risk from technical flaw is not so great as I think you will have time to form an opinion and react. The attacks so far presented seem to be more of risks later when Bitcoin is much more valuable and a cartel is attempting a (even invisible and silent) takeover. Although I am not yet clear on whether the selfish-mining could be hidden, probably not.

Many people have put thought into finding weaknesses in Bitcoin, so my intuition+analysis is that it is less likely that a catastrophic flaw could be found that would destroy it overnight. We are more likely to see attacks found which were not considered because they are more insidious and applicable for those who have huge resources, e.g. it is claimed with a fix that Bitcoin would only be subject to attack with selfish-mining if attacker has 25+% of the total network hashrate.

On the regulatory risk, it depends how you think the government views Bitcoin. My extreme conjecture is they (NSA et al) view it as a good honeypot for tracking illegal activities on the public ledger which is for the most part not anonymous. So thus I don't expect negative regulatory action near-term. However, due to compartmentalization, perhaps not all government sectors (within the same nation even) possess the same viewpoint.

I myself isn't really good at computer stuff and I find it hard to really understand. So in short, Bitcoin has a really small chances to go 0 and what about other type if coins like litecoin?

[AnonyMint]

I never know there is so much risk to Bitcoin.

Don't get angry at me if I am wrong, but my analysis so far is there is very low near-term risk such as Bitcoin would overnight permanently lose its value due to a technical flaw. I am not commenting about the recent speculative runup in the price, of course if could correct at some point. (Americans not in a tax-deferred trading account at least have the problem that if they sell now, then they have to declare and pay capital gains taxes, so that is one motivation for finding a hedge)

So I guess I am saying the risk from technical flaw is not so great as I think you will have time to form an opinion and react. The attacks so far presented seem to be more of risks later when Bitcoin is much more valuable and a cartel is attempting a (even invisible and silent) takeover. Although I am not yet clear on whether the selfish-mining could be hidden, probably not.

Many people have put thought into finding weaknesses in Bitcoin, so my intuition+analysis is that it is less likely that a catastrophic flaw could be found that would destroy it overnight. We are more likely to see attacks found which were not considered because they are more insidious and applicable for those who have huge resources, e.g. it is claimed with a fix that Bitcoin would only be subject to attack with selfish-mining if attacker has 25+% of the total network hashrate.

On the regulatory risk, it depends how you think the government views Bitcoin. My extreme conjecture is they (NSA et al) view it as a good honeypot for tracking illegal activities on the public ledger which is for the most part not anonymous. So thus I don't expect negative regulatory action near-term. However, due to compartmentalization, perhaps not all government sectors (within the same nation even) possess the same viewpoint.

I myself isn't really good at computer stuff and I find it hard to really understand. So in short, Bitcoin has a really small chances to go 0 and what about other type if coins like litecoin?

Newer and smaller altcoins will be more at risk of a technical vulnerability because they are less tested and probably have less resource for programming, etc..

I am not an expert on the valuations of altcoins.

Seems to me that Litecoin (LTC) is holding up its value well because it is the Bitcoin for GPUs. All those GPUs had to go mine somewhere and Litecoin is the most professional xerox of Bitcoin but so far ASICs can't mine on it.

I am not very knowledgable about the other altcoins and why people valued them. There is a lot of interest in proof-of-stake type coins such as Peercoin (PPC). I've read that one problem is the early adopters control too much in PoS. I have not analyzed that deeply.

I am biased because I want to see an altcoin with features I have been championing as important. And because I feel that a really great altcoin that was so much better than Bitcoin, would really get a lot of attention and support.

Some people have said altcoins are inherently more risky, because they are less proven, smaller market caps, and less hashrate securing their networks. Well there are counter points to those points too. But in general I would agree with the notion that altcoins are more speculative. But speculative can be a good thing too, for example that killer altcoin comes and then you ride it all the way from 1/1000 of a penny to $1 million.

[cunicula]

I never know there is so much risk to Bitcoin.

Don't get angry at me if I am wrong, but my analysis so far is there is very low near-term risk such as Bitcoin would overnight permanently lose its value due to a technical flaw. I am not commenting about the recent speculative runup in the price, of course if could correct at some point. (Americans not in a tax-deferred trading account at least have the problem that if they sell now, then they have to declare and pay capital gains taxes, so that is one motivation for finding a hedge)

So I guess I am saying the risk from technical flaw is not so great as I think you will have time to form an opinion and react. The attacks so far presented seem to be more of risks later when Bitcoin is much more valuable and a cartel is attempting a (even invisible and silent) takeover. Although I am not yet clear on whether the selfish-mining could be hidden, probably not.

Many people have put thought into finding weaknesses in Bitcoin, so my intuition+analysis is that it is less likely that a catastrophic flaw could be found that would destroy it overnight. We are more likely to see attacks found which were not considered because they are more insidious and applicable for those who have huge resources, e.g. it is claimed with a fix that Bitcoin would only be subject to attack with selfish-mining if attacker has 25+% of the total network hashrate.

On the regulatory risk, it depends how you think the government views Bitcoin. My extreme conjecture is they (NSA et al) view it as a good honeypot for tracking illegal activities on the public ledger which is for the most part not anonymous. So thus I don't expect negative regulatory action near-term. However, due to compartmentalization, perhaps not all government sectors (within the same nation even) possess the same viewpoint.

I myself isn't really good at computer stuff and I find it hard to really understand. So in short, Bitcoin has a really small chances to go 0 and what about other type if coins like litecoin?

There is no weakness. The authors made a number of serious mistakes in their article. Litecoin is more vulnerable to attacks in general due to the lack of ASICs. If you want to look at a coin that doesn't share a similar set of vulnerabilities as bitcoin, look at PPC.

[AnonyMint]

There is no weakness. The authors made a number of serious mistakes in their article.

You and I (and many others) are still debating selfish-mining. And I think I am winning that debate against your points over at hackingdistributed.com. So how can you make that conclusion? Did you respond to me again over there? (Don't debate selfish-mining technical points here in this thread please, off-topic)

Litecoin is more vulnerable to attacks in general due to the lack of ASICs.

Although I tend to agree, but it is an irrelevant point almost. That can be argued different ways. Being dominated by ASICs means Bitcoin could potentially be cartelized much more easily. And Litecoin has a considerable amount of GPU hashing rate on it, so it may not be vulnerable to any realistic attack.

If you want to look at a coin that doesn't share a similar set of vulnerabilities as bitcoin, look at PPC.

Yes but it may have other vulnerabilities and they may be better or worse.

[MilesJohan]

I never know there is so much risk to Bitcoin.

Don't get angry at me if I am wrong, but my analysis so far is there is very low near-term risk such as Bitcoin would overnight permanently lose its value due to a technical flaw. I am not commenting about the recent speculative runup in the price, of course if could correct at some point. (Americans not in a tax-deferred trading account at least have the problem that if they sell now, then they have to declare and pay capital gains taxes, so that is one motivation for finding a hedge)

So I guess I am saying the risk from technical flaw is not so great as I think you will have time to form an opinion and react. The attacks so far presented seem to be more of risks later when Bitcoin is much more valuable and a cartel is attempting a (even invisible and silent) takeover. Although I am not yet clear on whether the selfish-mining could be hidden, probably not.

Many people have put thought into finding weaknesses in Bitcoin, so my intuition+analysis is that it is less likely that a catastrophic flaw could be found that would destroy it overnight. We are more likely to see attacks found which were not considered because they are more insidious and applicable for those who have huge resources, e.g. it is claimed with a fix that Bitcoin would only be subject to attack with selfish-mining if attacker has 25+% of the total network hashrate.

On the regulatory risk, it depends how you think the government views Bitcoin. My extreme conjecture is they (NSA et al) view it as a good honeypot for tracking illegal activities on the public ledger which is for the most part not anonymous. So thus I don't expect negative regulatory action near-term. However, due to compartmentalization, perhaps not all government sectors (within the same nation even) possess the same viewpoint.

I myself isn't really good at computer stuff and I find it hard to really understand. So in short, Bitcoin has a really small chances to go 0 and what about other type if coins like litecoin?

There is no weakness. The authors made a number of serious mistakes in their article. Litecoin is more vulnerable to attacks in general due to the lack of ASICs. If you want to look at a coin that doesn't share a similar set of vulnerabilities as bitcoin, look at PPC.

Seriously, why would litecoin be more vulnerable to attacks due to lack of ASIC?

[Omikifuse]

There are many hedge against Bitcoin, what about property and stocks?

[SuperHakka]

There are many hedge against Bitcoin, what about property and stocks?

I think what the OP really means is how to short bitcoin, i.e. a 1 for -1 move on bitcoin. Properdy and stocks aren't going to do 1 for -1, they are uncorellted.

[shutik]

to hedge means to remove the risk of financial losses in the event of decline in value. http://en.wikipedia.org/wiki/Hedge_%28finance%29

By definition hedging protects from loss at the expense of limiting gain.

I suspect author means delta hedge, one that protects from decline in direction of the price.

Forward of future contract with another party accomplishes it, but introduces counter-party risk.

Clearing house mitigates this risk, but there isn't one that I know of as of this moment.

We just have to wait until bitcoin gets bigger and more secure to store.

Until than limiting yourself to the % of exposure of your total investable assets is a good way to proceed.

[AnonyMint]

and to think, a few months ago i was going to buy $100 worth of litecoins when it was trading at 6 cents per.. being lazy is a bad, bad thing!

this.

[Johnny Bitcoinseed]

Storable Food, clothing shoes etc you wear, tires if you have a car, tools, firearms and ammunition.  These are the best hedges of all because you can use them no matter what happens.

[byronbb]

People mis-understand OP. He wants to buy insurance against a bitcoin collapse. So he pays a premium upfront to win a huge USD payout if it collapses.

[AnonyMint]

Some talk of a potential plan to short LTC now that it has reached $36:

https://bitcointalk.org/index.php?topic=323988.msg3747729#msg3747729

Regarding the last two comments, I wonder when calls for the SEC and EU equivalents to get involved will come due to what I am reading to be desire to collude to manipulate markets? Or am I misreading.

[lumierre]

@Topic
If you're afraid of Bitcoin's vulnerabilities then Peercoins could be a good place for cover. PPC is almost invulnerable to a 50% attack and selfish mining. The way Proof-of-Stake blocks are generated encourages randomness in minting coins, especially the 30 day minimum minting time and 90 day coin days cap. I suggest you read more about it and decide for yourself.

[AnonyMint]

@Topic
If you're afraid of Bitcoin's vulnerabilities then Peercoins could be a good place for cover. PPC is almost invulnerable to a 50% attack and selfish mining. The way Proof-of-Stake blocks are generated encourages randomness in minting coins, especially the 30 day minimum minting time and 90 day coin days cap. I suggest you read more about it and decide for yourself.

I posted (from the Bitcoin stackoverflow Q&A) a hypothetical attack on PPC upthread. I have not verified that.

[lumierre]

@Topic
If you're afraid of Bitcoin's vulnerabilities then Peercoins could be a good place for cover. PPC is almost invulnerable to a 50% attack and selfish mining. The way Proof-of-Stake blocks are generated encourages randomness in minting coins, especially the 30 day minimum minting time and 90 day coin days cap. I suggest you read more about it and decide for yourself.

I posted (from the Bitcoin stackoverflow Q&A) a hypothetical attack on PPC upthread. I have not verified that.

Please give me the link. I can't find it. I'll show it to some PPC pips.

[AnonyMint]

@Topic
If you're afraid of Bitcoin's vulnerabilities then Peercoins could be a good place for cover. PPC is almost invulnerable to a 50% attack and selfish mining. The way Proof-of-Stake blocks are generated encourages randomness in minting coins, especially the 30 day minimum minting time and 90 day coin days cap. I suggest you read more about it and decide for yourself.

I posted (from the Bitcoin stackoverflow Q&A) a hypothetical attack on PPC upthread. I have not verified that.

Please give me the link. I can't find it. I'll show it to some PPC pips.

http://bitcoin.stackexchange.com/questions/9336/can-anyone-explain-this-vulnerability-in-ppc

[lumierre]

If you had (12/129600) of the current total number of coins in the network and a merchant who accepted funds after 6 confirmations, you could spam 6-12 blocks quickly after waiting three months and try to attempt to double spend like this.  The probability of such an attack succeeding is extremely high, and the cost to the attacker is virtually nothing.  I'm not sure 100% how PPC deals with this.

Coins enter a cooldown where they are prevented from generating a consecutive PoS block when the "coin days" are consumed. This last for 30 days. Additionally, there is a 90 day cap where your coins no longer generate "coin days" even after 90 days. This prevents shocking the minting network from a sudden minting player.

If this was applied to the bitcoin network (which I don't think is possible there), Imagine that a miner successfully solves a block. He is rewarded but his hashing power is then forcefully suppressed for 30 days. Therefore, he would not be able to solve blocks in succession because his hashrate, relative to other miners, decreases as he solves blocks. The network will be more secure because there will be more randomness of whoever solves the blocks. Because of this, PPC is resistant to 50%+ attacks. Even if someone has majority of the coins, when he generates a PoS block with it, his coins enter cooldown (30 days) thus lessening his probability of generating another PoS block while the probability for other people to generate a PoS block increases.

[AnonyMint]

If you had (12/129600) of the current total number of coins in the network and a merchant who accepted funds after 6 confirmations, you could spam 6-12 blocks quickly after waiting three months and try to attempt to double spend like this.  The probability of such an attack succeeding is extremely high, and the cost to the attacker is virtually nothing.  I'm not sure 100% how PPC deals with this.

Coins enter a cooldown where they are prevented from generating a consecutive PoS block when the "coin days" are consumed. This last for 30 days. Additionally, there is a 90 day cap where your coins no longer generate "coin days" even after 90 days. This prevents shocking the minting network from a sudden minting player.

If this was applied to the bitcoin network (which I don't think is possible there), Imagine that a miner successfully solves a block. He is rewarded but his hashing power is then forcefully suppressed for 30 days. Therefore, he would not be able to solve blocks in succession because his hashrate, relative to other miners, decreases as he solves blocks. The network will be more secure because there will be more randomness of whoever solves the blocks. Because of this, PPC is resistant to 50%+ attacks. Even if someone has majority of the coins, when he generates a PoS block with it, his coins enter cooldown (30 days) thus lessening his probability of generating another PoS block while the probability for other people to generate a PoS block increases.

Interesting. I will need to spend more time analyzing. Can't right now.

The inherent flaw of proof-of-stake is that the 3% can never be debased (elaborated in my November posts). Thus it can never be a currency. Thus it has no intrinsic value. Now if you combine it with CPU-only proof-of-work then you have distribution, but then you've lost absolute resistance to 50%+ attack? I think. Need to study that combination more. Will do after I complete some urgent work. I have stated I will support any promising altcoin.

I outlined what I analyze (my biased opinion and logic) to be the real risks from 50%+ attack and other vulnerabilities of Bitcoin and its proof-of-work clones (Litecoin, etc):

https://bitcointalk.org/index.php?topic=349869.msg3760634#msg3760634
https://bitcointalk.org/index.php?topic=349869.msg3755466#msg3755466

[jballs]

I think there is something very interesting in the bitshares concept. Although I, and I think many other people, would like more of a "vanilla" solution. That is, a straightforward option ( call and put ) contract based on an aggregate strike price on Mtgox, bitstamp and other exchanges. The contract length should be for at least a few months - this is where btclevels.com falls down as the binary contract length is so very short. As bitcoin is unregulated and not traded on an open exchange the option premium should be low.

The price of BTC is so volatile as the currency matures people will absolutely need products like this to mitigate price risk. I am new in taking an active interest in BTC although have been aware of the currency since 2011 after reading a New Yorker article. http://www.newyorker.com/reporting/2011/10/10/111010fa_fact_davis

Personally I am really surprised their is not a product in that hedges bitcoin price risk??  

I am a professional hedging consultant in real life. Mostly for ag and energy futures and options products but currencies and all other intangibles are roughly the same gig. BTC is unique as it has no counterweight (i.e. none of the suggestions in this thread are hedging strategies, most especially buying other altcoins which I guarantee you will follow BTC directly during these high vol phases, and crash in tandem if crash does come)

I'm very interested in creating this product, obviously there is now an acute need for it, and a shitload of newly minted money to drive liquidity.

The short term binary option sites and such are not the viable solution. They are speculative gaming sites (not knocking it I would like to start one of these as well), The product in demand is an OTC style swap market.

Everything you say above is correct except that the premiums would be low because of the unregulated nature. ANything that increases risk increases option premium. The volatility and total vaguery of BTC is why there is nobody from Wall Street jumping in with an OTC solution for option dealing.

My solution is really pretty simple, and ideally would involve partnering with anyone with a few thousand or more BTC they have no interest in parting with. There is a simple metric whereby puts and calls can be counterweighted against a long position, the idea being that you are insuring both sides of a market but in this case with a 12 mile head start given the volatility. Calls would be covered and puts would necessarily be naked, but if you kept a conservative delta you could manage the whole position relatively easily. Anyone who truly believes BTC is going higher in the intermediate term and holds BTC also should absolutely be doing this already. I think the problem being they view it as compounding their downside risk, which is what my metrics can extinguish.

I hope I will get a product to fill this niche to the marketplace in the very near future. If I can't get it done I have no doubt someone will soon enough. Hope it's not the good old boys but I know they are seldom far behind me so... could be.

cheers...

[jballs]

The perfect hedge against bitcoin collapse would be an another cryptocurrency. If the crash begins and enough people would fall into LTC for instance, then a new bubble would start forming there that would attract most of the past BTC investors.

This is 100% wrong. If BTC crashes there will be immediate liquidation of all the rest. Depending on why BTC crashed the effect may not last (i.e. one alternative is safe from whatever crashed BTC), but this is the opposite of an effective hedging strategy.

[AnonyMint]

The perfect hedge against bitcoin collapse would be an another cryptocurrency. If the crash begins and enough people would fall into LTC for instance, then a new bubble would start forming there that would attract most of the past BTC investors.

This is 100% wrong. If BTC crashes there will be immediate liquidation of all the rest. Depending on why BTC crashed the effect may not last (i.e. one alternative is safe from whatever crashed BTC), but this is the opposite of an effective hedging strategy.

This is likely true even for the "antithesis-of-Bitcoin-coin", because the majority of the speculators are ignorant of the technological issues.

However if the "antithesis-of-Bitcoin-coin" ever arrives (is it PPC/Peercoin, see my upthread post?), then the knowledgeable speculators will be buying it on sell-offs. And eventually it will have longer-term counter-trend price to Bitcoin, even though the short-term ripples may mimick Bitcoin on the long-wave counter-trend. Thus there would be a firmer floor on sell-offs than for Bitcoin, if and only if significant wealth understands. That may take some time to develop. In the interim, market action for smaller market cap altcoins is likely to be more volatile.

I am assuming the "antithesis-of-Bitcoin-coin" would have a different model of coin supply such that it had a non-ponzi-bubble (in my opinion Bitcoin = no intrinsic value as a currency) long-term valuation.

[AnonyMint]

My solution is really pretty simple, and ideally would involve partnering with anyone with a few thousand or more BTC they have no interest in parting with. There is a simple metric whereby puts and calls can be counterweighted against a long position, the idea being that you are insuring both sides of a market but in this case with a 12 mile head start given the volatility. Calls would be covered and puts would necessarily be naked, but if you kept a conservative delta you could manage the whole position relatively easily. Anyone who truly believes BTC is going higher in the intermediate term and holds BTC also should absolutely be doing this already. I think the problem being they view it as compounding their downside risk, which is what my metrics can extinguish.

I hope you quants factor in the market cap growing 12X per annum.

It seems the call options are already built-in to the underlying Bitcoin asset. Why would a long-term holder risk it?

Also it seems to me the long-term holder needs a way to exit with puts, selling out to n00bs who want leverage on something which is already leveraged to infinity (no intrinsic value in my opinion).

In short, how do you hedge a ponzi-bubble? You can't unless you make friends with the government.

[chmod755]

Too lazy to read all this - bought more precious metals.

[BitcoinTraderFX]

It's been said earlier that for a hedge to function to work, and actually save you, it MUST go up WHEN bitcoin goes down.

Metals have a seeming correlation, but it's not tied. So if bitcoin were to collapse, it's not likely gold would suddenly shoot up during the same moments.

If you want to use metals, then consider buying options on the futures contract (any futures brokerage can do it.)

It would function as a in "Insurance Policy" that would pay if metals suddenly went up. But as I said the correlation is not tied at a fundamental level.

As for forex brokerages offering bitcoin, be cautious. They are betting against you, so in a large move, there is a lower likelyhood that you would be able to get your money out.

Just be cautious.

Exchange fees are low enough that you can afford to move your positions to protect yourself. If you were trading stocks or futures, the commissions would kill you. Not so in Bitcoin.

: )

cj

[chmod755]

Metals have a seeming correlation, but it's not tied. So if bitcoin were to collapse, it's not likely gold would suddenly shoot up during the same moments.

Of course it's not "tied on a fundamental level", but precious metals are the winner if other financial assets are failing - that's why we've seen them going up during the financial crisis.

Otherwise you'd have to bet a certain amount of money against Bitcoin (and also be sure that the other party is reliable) in which case you can also lose.

[BitcoinTraderFX]

Sorry @chmod755, what I meant was that they are not tied directly in "action" at 1:1, or 1:something.  So if bitcoin dropped 10%, you wouldn't see a correlated% rise in gold necessarily.

There are two kinds of risk hedging (at a very basic level). There is dollar for dollar risk. I have $100,000 invested in bitcoin. If it drops $50,000 I want to cover that $50,000 with something else. So I still end up with $100,000 in cash value no matter what happens.

Then there is investment hedging (or portfolio diversification). Then gold is somewhat diverse, although going down at the moment. So I was referring to the dollar for dollar type of hedging. For that...

So it's hard to form a true risk-hedge dollar for dollar through calculation with gold.

So a fuzzy hedge would be (and I mean really fuzzy) would be to buy a way out of the money call on gold. So it would be really cheap. Let's say $50. Then if there were a fall in bitcoin, and assume that money flows into gold, then the $50 call might be worth $200, offsetting the fall in bitcoin.

In the future there will be options and futures contracts for bitcoin. Then you could do $:$ risk hedging.

ie. People do this in futures and stocks all the time. You just calculate the offsetting positions, and what premium is needed to cover that offsetting position. It ensures portfolio stability. ie. Buy apple stock 1 month before product announcement, buy a put option to cover it. Great product, apple stock goes up, make a fortune. Bad product, apple stock goes down, put option pays off, no big net loss.

Too many cross used terms bandied about. Fundamental, hedge, yada, yada, yada. My apologies.

: )

cj