Hedging Your Hodl

A Primer for Managing Assets on The Bitcoin Standard

In June 2019 I wrote a brief essay outlining the fundamental significance of contango for commercial bitcoin interests. The fourfold rise in Bitcoin price along with substantial futures premium to the spot market created a fundamental situation allowing commercial interests (primarily miners) to hedge a portion of their production six months out into the future, locking in a profitable year for mining regardless of future price fluctuations.

At the same time, the fourfold price rise along with the futures premium was a curse for speculators. While Bitcoin certainly could have continued to rise, speculators were paying a heavy penalty for the “privilege” of maintaining speculative long positions.

Essentially market forces caused selling to move into strong commercial hands while passing off the risk to weak speculation.

And while bitcoin prices have pretty much maintained a price of $10,000, there has been no appreciation. Longs have been paying a premium to remain long, while shorts have been paid funding or realized a narrowing of the contango.

In other words, the market shorts remain the strong hands while market longs are increasingly weak hands.