Problem : Cryptocurrency volatility
More and more crypto-holders are exposed to volatility:
Miners get their revenues in cryptos but have to convert them, at least partially, into fiat currencies to pay their operating expenses such as rents, salaries and electricity costs.
Service providers may charge their fees in cryptos as an easy mean of payment but take the risk of BTC/Fiat price.
Since 2016 , significant amount of capital has been raised in cryptos , mainly in BTC and ETH, but projects face expenses in fiat currencies.
International investors are increasing the allocation to crypto assets as an uncorrelated assets but often do not have access to hedging techniques in rainy days.
Solution : Crypto Hedging Program
By dynamically hedging the crypto exposure ,the program reduces the risk of conversion into fiat enabling the crypto holders to benefit from favourable trends in the crypto markets while preserving most of the value in rainy days.
The hedge ratio is managed according to signals generated by quantitative systems
The objective of the program is risk reduction and return improvement
The program is implemented as a managed account opened at a broker or any platform selected jointly by the client and the management team.
A detailed IMA (Investment Management Agreement) describes the guidelines
Implementation : Turning Risk into a return opportunity
The implementation of the hedging program is simple and consists in the following steps:
Mandate guidelines: the client defines the mandate parameters, including the fiat notional or crypto amount to hedge, initial margin deposit, hedging instruments, fee strucure and the crypto exchange to use in the program.
Review the legal documents: legal documentation regarding the program, including the disclosure document limited power of attorney, and subscription agreement.
Open exchange account: the client opens an account on the crypto exchange, transfers the initially agreed deposit, and gives us the ability to trade.
Performance reporting: we constantly monitor the client account and take actions when needed to achieve the objective in the client mandate.