switching to fiat money vs shorting Btc as a consistent hedging strategy

[niccolo_21]

hello everyone,

it is a very specific question I would like to ask, so I hope those who take part to the chat will talk from direct experience.

I've been using bitmex for over three years now, and I never felt the need for a different trading account: partly due to its low fees, partly to its graphic layout, to its semplicity and of course, liquidity.

As we approach the risk of a phase of price correction though, I need to consider effective strategies for hedging the value of my bitcoin amount.



You can short of course; but that's not as easy as it looks, so I am starting to realize that may be it's better to switch from btc to fiat during significant price corrections rather than opening a short position.

Now, bitmex lets you do a lot of things, but something you cannot do is selling your crypto assets for euros: you need a different exchange for that, like Binance ..


So in this small topic I would like to discuss the outcome of those two (or more) different approches when you feel the need to protect your crypto capital in a descending phase.

Bear with me ()






let's suppose you have 0,1 xbt in your trading account: you wanna be able to keep your equivalent value intact even when the market is descending.

If the price goes from $63000 to $30000 you'll need to have 0,21 btc just to maintain your equivalent value stable: this will cost you a short position of $13230 exposure starting from $63000, which is (was) rather hard to open just to maintain your value, and you won't be getting any additional significant advantage compared to switching to fiat money.

what's your take on that?

do you agree on my calcs?

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[kramchers]

I've been here for a couple of years and yet still I'm confused to this figure what you are illustrating it now.
But I do understand only is switching to fiat money going to Bitcoin then buy some altcoins and make some
day trade or scalping something like that. But I really want to understand this how you calculate those things.

[Tytanowy Janusz]

do you agree on my calcs?

Hard to say because its not in eanglish

what's your take on that?

do you agree on my calcs?

Leave bitmex, switch to binance, convert your BTC into USD and continue to trade on binance. Headging requires constant monitoring and kills your liquidity (part of your money is fighting with other part of your money). So you need to hold twice as much money on exchange (not your keys not your money). Or overleveraged your position what exposes you flash crashes.

I've been here for a couple of years and yet still I'm confused to this figure what you are illustrating it now.
But I do understand only is switching to fiat money going to Bitcoin then buy some altcoins and make some
day trade or scalping something like that. But I really want to understand this how you calculate those things.

"aurum argentum orationem silentium" Especially if all you have to say is "I don't know"

[Zilon]

It depends on how good and reliable your strategies are. Shorting your btc requires a very strong analysis considering the high volatility of the market. For one without a perfect trading strategy converting them to fiat at a low point will mean a huge loss. This would have been done quite earlier than this. For now hold on to your investment and wait for a reversal which we are all expecting sooner than we expect

[AicecreaME]

Switching BTC to fiat is the safest way to secure your profits, but in my opinion, why not just hodl it? I mean, if you'll convert it again to Bitcoin when you see the price rising again, so why bother, right?

Bitcoin hedging or shorting is risky, especially if you got caught in a fake out, like you thought it was going down but it's not, so it's much better to hold it if you're not confident on your hedging strategy, but if you're good enough on it, then do it instead of hodling to make profits in every price correction.

[redwine49]

do you agree on my calcs?

Hard to say because its not in eanglish

what's your take on that?

do you agree on my calcs?

Leave bitmex, switch to binance, convert your BTC into USD and continue to trade on binance. Headging requires constant monitoring and kills your liquidity (part of your money is fighting with other part of your money). So you need to hold twice as much money on exchange (not your keys not your money). Or overleveraged your position what exposes you flash crashes.

i rather like this opinion. i switch bitmex to binance in 2019.
All because it will be complicated to short our initial bitcoin balance rather than switching into fiat.
some people here doesn't understand how to calculate if where are gonna take short position with crypto not with fiat

[niccolo_21]

thanks for your replies.

I translated the captions into english.

Regardless of one's actual choice, I think it's always interesting discussing about these subjects which are quite rare but very helpful.

Let me illustrate what I mean for the member who was asking




Let's imagine a scenario where BTC drops from $ 62k to $30K: as you can read in the sheet it's a 52% price drop. If you have 0,1 BTC, before the drop they are worth: 0,1 * $62000= $6200.

When the price drops to 30k they will be worth just $3000. In order to keep their initial value you must necesserely increase your amount of btc during a phase of price reduction.

In particular, if the price drops to 30K, in order to maintain your initial (or maximum) value of $6200 you need to increase your total btc amount to at least 0,2067 BTC. In fact 0,2067 * $30000 = $6200.

Now, in order to open a short position for 0,2067 at $62000 you need to have an exposition of approx. $12800, which is double the value of your actual position.

It means that you need to open a short position for double your entire btc amount.

And this is easier said than done, especially from an emotional standpoint. And all this just to maintain your value, not even increase it ..


This is the reason why in the end I preferred transferring my btc from Bitmex to Binance, where I sold 3/4 of them for fiat money (€).

This way, no matter how deep bitcoin drops, a certain amount of value of money will always be safe.

And that's it.

But this also means that bitmex, while it's more transparent (more on this in another topic), it must be rejected because it proves itself quite limitating compared to binance .. at least for me


For those who ask why not holding, I am basically not a holder.

[redwine49]

This is the reason why in the end I preferred transferring my btc from Bitmex to Binance, where I sold 3/4 of them for fiat money (€).
This way, no matter how deep bitcoin drops, a certain amount of value of money will always be safe.

yeah... but it's not real fiat currency. it's still crytocurrency that claims that each token is backed by fiat currency.
sad thing is you ll have to accept that risk. the risk of holding crypto backed fiat currency.

In particular, if the price drops to 30K, in order to maintain your initial (or maximum) value of $6200 you need to increase your total btc amount to at least 0,2067 BTC. In fact 0,2067 * $30000 = $6200.

that gives us problems if we use bitcoin for trading. especially i think there is a lot more risk than reward by holding bitcoin right now.

[niccolo_21]

This is the reason why in the end I preferred transferring my btc from Bitmex to Binance, where I sold 3/4 of them for fiat money (€).
This way, no matter how deep bitcoin drops, a certain amount of value of money will always be safe.

yeah... but it's not real fiat currency. it's still crytocurrency that claims that each token is backed by fiat currency.
sad thing is you ll have to accept that risk. the risk of holding crypto backed fiat currency.

may be there's a misunderstanding here, or may be it's something I am missing: I didn't sell BTC for USDT or some other stable coin: I sold them on Binance (3/4 of them) to € Eur. I'm inclined to think that is real money. Or you are aware someway that in binance even eur are still crypto? This sounds new to me

In particular, if the price drops to 30K, in order to maintain your initial (or maximum) value of $6200 you need to increase your total btc amount to at least 0,2067 BTC. In fact 0,2067 * $30000 = $6200.

that gives us problems if we use bitcoin for trading. especially i think there is a lot more risk than reward by holding bitcoin right now.

it's hard to tell: bitcoin had a year-long run during which the price decupled (!). It can go higher, of course, but it may not. The point in my opinion is providing you with some sort of exit strategy which fits your goals and your beliefs and stick to that.
But this, of course, we all know 

[redwine49]

This is the reason why in the end I preferred transferring my btc from Bitmex to Binance, where I sold 3/4 of them for fiat money (€).
This way, no matter how deep bitcoin drops, a certain amount of value of money will always be safe.

yeah... but it's not real fiat currency. it's still crytocurrency that claims that each token is backed by fiat currency.
sad thing is you ll have to accept that risk. the risk of holding crypto backed fiat currency.

may be there's a misunderstanding here, or may be it's something I am missing: I didn't sell BTC for USDT or some other stable coin: I sold them on Binance (3/4 of them) to € Eur. I'm inclined to think that is real money. Or you are aware someway that in binance even eur are still crypto? This sounds new to me

I am the one who's doesn't know that there is euro fiat currency exsist in binance.
Maybe because iam just looking for USD fiat and IDR fiat currency

In particular, if the price drops to 30K, in order to maintain your initial (or maximum) value of $6200 you need to increase your total btc amount to at least 0,2067 BTC. In fact 0,2067 * $30000 = $6200.

that gives us problems if we use bitcoin for trading. especially i think there is a lot more risk than reward by holding bitcoin right now.

it's hard to tell: bitcoin had a year-long run during which the price decupled (!). It can go higher, of course, but it may not. The point in my opinion is providing you with some sort of exit strategy which fits your goals and your beliefs and stick to that.
But this, of course, we all know  

Ya, that's true. It's hard to tell. As you said, you aren't a holder. You are crypto trader.
At some point we have something in common. That's why you decide to sell 3/4 of your bitcoin into fiat currency.
Because you have more reason not to keep all in bitcoin. Example : did you think that bitcoin price is overvalued at this moment?
As trader, i did the same way

[niccolo_21]

I have spent the last three years on an italian discussion forum (not bitcointalk) where I could truly get a glimpse of what being a Bitcoin fan really means.

Personally, as I was trying to argument in a previous topic here, I don't have anything against holders for what it's worth: but I can't stand crypto fanatics.

And may be just because I envy them after all, who knows..

Anyways, there was this guy in the forum who used to brag because he didn't use stop losses: he never ever closed a position in loss.

Besides being a holder with the classic DCA approach, he used to open some "trading" position from time to time on bitcoin or alts, but he never closed the position if it was in loss. What did he do? He just waited.. waited until the price rised up again and turned the position to gain.
(of course he wasn't affected by funding fees because he only operated on kraken or bitstamp).

In the end he admitted that he couldn't consider himself a real trader, but rather that he was sustained by some sort of faith in bitcoin, which led him to believe that the price will always come back and rise no matter what.

Now, this type of conduct would be punished in any other financial market.. but not in cryptomarkets..

If you look at the dot-com bubble back in 2000s, you notice that some stock did never touch those prices again (ST microelectronics, for one), so if you had bought at their highs in the mid of the bubble, you would be in loss even after 20 years.

The nasdaq index took something like 14 years to "recover", to check those price levels again, just to give an example..

Instead, if you bought bitcoin at its high back in december 2017, after just 3 years you'd be forgiven your mistakes..


Bitcoin fans keep buying "the dip" as if the price was destined to always be rising "by design"; they worship plan B and all his stock-to-flow stuff, which I hate.. they have no consideration for any sort of method whatsoever, they don't know what risk management is... they just believe .. they just have faith and rely at the mercy of bitcoin ..

but, surprisingly, they are right until now..

and, I'll admit, that makes me a little mad ..

[Gozie51]

Instead, if you bought bitcoin at its high back in december 2017, after just 3 years you'd be forgiven your mistakes..

but, surprisingly, they are right until now..

and, I'll admit, that makes me a little mad ..

This kind of pattern is what make cryptocurrency different kind of trade. You can hodl a coin in its bear continuously until it picks again without losing its unit even when you are hodling in your wallet. Those who bought at the last ATH in 2017 and felt bad of bear are all having a new story today.

[redwine49]

Instead, if you bought bitcoin at its high back in december 2017, after just 3 years you'd be forgiven your mistakes..

but, surprisingly, they are right until now..

and, I'll admit, that makes me a little mad ..

This kind of pattern is what make cryptocurrency different kind of trade. You can hodl a coin in its bear continuously until it picks again without losing its unit even when you are hodling in your wallet. Those who bought at the last ATH in 2017 and felt bad of bear are all having a new story today.

Everything has a peak. We don't know how much maybe 1m$/ bitcoin or more but we all know for sure fiat money always decrease in value.
That's why they don't care if bitcoin/altcoin goes down for short time period. Because they believe cryptocurreny is more bigger than dot-com bubble.
As traders we only try to get maximum profit for the short term and as holder/investor they only try to get maximum profit for long term.

[niccolo_21]

Has anyone here ever traded BtcDownUsdt on Binance?


I was thinking of buying some, it has good outlook. But I dont trust binance, so was curious to here others opinions, in case some surprise may arise

Same question for Paxg always on Binance: you can invest in gold with crypto: I like that

[Husires]

it is better not to converting all capital into fiat USD or GBP that does not happen until greed begins to dominate the market and begins with unnatural highs that many believe that the price will not fall at it. Which will most likely happen after the price breaks 100k level.
Shorting is for a short time investing with amounts less than 40% of the capital.

[niccolo_21]

it is better not to converting all capital into fiat USD or GBP that does not happen until greed begins to dominate the market and begins with unnatural highs that many believe that the price will not fall at it. Which will most likely happen after the price breaks 100k level.
Shorting is for a short time investing with amounts less than 40% of the capital.

you are right, as I've already stated some posts ago I have sold 3/4 of my position after transferring to binance and I am always ready to open a new long.
Today I was caught by surprise, and couldn't foresee such a spike up, or I would have opened a long position.

if we reach 100k in the next months as you say, I hope I will be in with more than 1/4 as of now

[usekevin]

When the price increased ,you can convert full amount into fiat or usd.It doesn't problem at all.Later you should again reinvest to the best coin.Continuous the process for more number of time.Then it will be a good way to earn more from it.You can handle the loss by the steady analysis to the market.The trusted coin will get good market over a period of 6 months.

[pooya87]

Your scenario is an extreme one though, from $60k to $30k is not just a normal drop it is a catastrophic market crash that is not going to happen that easily and is definitely not a regular thing. Usually we see smaller drops of 10% which is actually the most regular thing in this market and bigger "crashes" are around 30% most of the times.
Your exposure and the risks you are talking also decreases by a lot when you consider the smaller size of the drops. But generally speaking shorting is always riskier and shorting bitcoin specially when it is in a bull market has a bigger additional risk.

[niccolo_21]

Your scenario is an extreme one though, from $60k to $30k is not just a normal drop it is a catastrophic market crash that is not going to happen that easily and is definitely not a regular thing. Usually we see smaller drops of 10% which is actually the most regular thing in this market and bigger "crashes" are around 30% most of the times.
Your exposure and the risks you are talking also decreases by a lot when you consider the smaller size of the drops. But generally speaking shorting is always riskier and shorting bitcoin specially when it is in a bull market has a bigger additional risk.

that's right. Consider I came into this market at the beginning of 2018, as many others did, just after the bubble.

Especially during that first year, until Dec 2018, shorting could be very profitable instead as you will remember.

Now we went through a year-long bull market which proved so strong and shorting was certainly not reccomended, BUT..

another bearish phase will come, another consistent phase of price correction will come: and shorting during those times will not look as crazy as it may have looked during those last weeks.

As for the extent of the price reduction, I believe that $30000 can surely be in range, especially if the drop is fueled by some sort of bad reputational news, where everybody seems to just want to run away.

It will not happen next week of course, but when it drops, even if he drops from 100k, 30k will not be out of reach in my opinion.


As for the short trade itself, I have discovered this asset on binance which I kind of like because it look pretty balanced:

being aware as I am of how hard it is to short an asset, especially a raging one like btc, I find this tool quite interesting: because it's not futures so you don't have to pay any sort of funding; it doesn't belong in the derivatives section of binance either, so you don't have to face the risk of margin calls or some tricky surprises with margin/exposition ratio: it's just a tradable asset with its own chart like any other tradable binance asset.

The (inverse) correlation with btc is pretty balanced all in all and I think it's a nice tool for a price reduction phase in general.

We'll see what happens 

[redwine49]

Your scenario is an extreme one though, from $60k to $30k is not just a normal drop it is a catastrophic market crash that is not going to happen that easily and is definitely not a regular thing. Usually we see smaller drops of 10% which is actually the most regular thing in this market and bigger "crashes" are around 30% most of the times.
Your exposure and the risks you are talking also decreases by a lot when you consider the smaller size of the drops. But generally speaking shorting is always riskier and shorting bitcoin specially when it is in a bull market has a bigger additional risk.

I totally agree with niccolo_21. If we look at bitcoin chart history.
The bitcoin bullrun started last year march 2020
bottom 3-5k$/bitcoin wednesday march 18th,2020. It's already up more than 1600% But until now we don't get any significant correction.
We think shorting bitcoin from 60k to 30k$/bitcoin is good compare to another scenario 60k to 90k$/bitcoin.

[el kaka22]

Switching to fiat is for me. I do not like fiat at all but that shorting btc thing is not just a method where you could hedge against a drop, but it is also a method where you could lose money. When you switch to fiat, and price of bitcoin goes up, you only lost a chance to profit, whereas when you short against bitcoin you are not only losing a potential to profit, but you are also losing a lot of money as well. This is why I personally do not short bitcoin and it is really against the whole idea of bitcoin for me.

I am not saying bitcoin will never fall, it does have corrections time to time and we lived that, however I just believe that bitcoin is against inflation and fiat is not which means fiat will keep losing value whereas bitcoin will keep gaining value in the long term. So, shorting bitcoin is not something I would consider, it just doesn't make sense.