In late 2021, Earnity, A community-based platform to buy and sell crypto led by Dan Schatt and Domenic Carosa, partnered with Bitcoin mining company BitNile, closing $15 million in stock offerings. Earnity is dedicated to launching a platform that will allow crypto users to buy, sell, and hold digital assets. It also looks to provide a marketplace for people to participate in crypto buying.
Buying in cryptocurrency can be rewarding. But the market’s volatility can lead to some losses if wrong financial decisions have been made. While some crypto traders see the inherent market volatility as a chance to make money, the exposure to increased risk can have substantial financial implications.
Fortunately, there are ways to manage trading risks when building a crypto portfolio, including hedging. To hedge means to buy in an asset that can protect the buyer’s finances from a risky situation. It’s similar to home insurance in that the buyer shells out money to offset any possible loss.
Three Methods
There are three standard methods to hedge a crypto portfolio: diversification, short-selling, and using futures or other derivatives.
Portfolio diversification is the simplest means of minimizing risks in cryptocurrency buying. It involves purchasing different crypto assets, resulting in each token acting as a hedge to one another. When the value of one cryptocurrency falls, the total loss would be significantly lower than when a trader bought all of their funds in just a single asset.
On the other hand, short-selling is more complex as it requires more analysis to execute. It is selling a particular asset whose value is expected to drop shortly and then buying it again at a lower price.
Buyers can also use derivatives to hedge a crypto portfolio. Derivatives are contracts that derive their value from a primary underlying asset, and one of the most common derivatives is a future contract. Futures are agreements between multiple parties wherein a particular crypto asset will be traded using a predetermined price on a future specified date. This strategy can help smooth out the bumps in the market and provide some security against dramatic price swings.
Knowing that there are plenty of risks involved in buying in cryptocurrency, it is understandable that many have hesitated from putting money in it. To help users learn more about crypto, Dan Schatt and Domenic Carosa have designed the Earnity platform to be a place where collaborative learning can occur through community building and sharing of insights.
