Holding Bitcoin (BTC) Longer: The Dynamic Hedging Abilities of Bitcoin

By  //  August 19, 2022

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Many investors believe Bitcoin is a good store of value, but it is not. Even though it has been one of the top cryptocurrencies since its inception, its price volatility makes it unsuitable for those looking to invest in a haven asset.

Instead, investors should look at ways to hedge against the risk that inflation will increase over time. If they do so correctly, they can use Bitcoin as a hedge against inflation while also profiting from its appreciation in value over time.

Bitcoin has been in the news lately, and for a good reason. The digital currency is growing astonishingly, and its volatility has drawn investors to it like moths to a flame. Many people wonder if Bitcoin is a safe investment, and there is no easy answer. But one thing is for sure: Bitcoin holders have some powerful tools at their disposal when it comes to hedging their bets.

Bitcoin has been on a tear of late, with its price surging past $8,000 earlier this month. While some people may be tempted to get in on the action, some may want to hold onto their bitcoins for longer-term purposes. One such strategy is called “dynamic hedging.” Here, investors use bitcoin to hedge against risk in other assets, making it a valuable tool for long-term portfolio management.

Bitcoin (BTC) Holding Strategies

Many people hold Bitcoin as an inflation hedge. As we know, the dollar had lost almost 95% of its value since 1913, when it was backed by gold and silver. In comparison, Bitcoin has held its purchasing power over the last decade, but one of its major flaws is that it’s volatile and unpredictable.

This makes Bitcoin unsuitable as a store of value or haven asset because when things get tough, there will always be people willing to sell their Bitcoin at low prices to pay for their daily expenses.

Therefore, if you’re looking for a reliable method of storing your money safely, it would better suit something like gold rather than cryptocurrency because gold doesn’t have any supply limit. Unlike other precious metals, and can never go extinct, unlike fiat currencies such as the US Dollar.

On the other hand, cryptocurrencies such as bitcoin still have some potential that can help you protect yourself against inflation risk without having any financial obligations attached, so long-term investment might not be a bad idea either way. Furthermore, in order to become a better investor, you need to visit websites where you can find, reviews and comparisons of cryptocurrencies that can help you with decision-making.

Dynamic Hedging Ability Versus Speculative Demand

If you hold Bitcoin longer, your expected return on investment will increase. Your risk exposure is more dynamic than if you were to hold other assets such as gold or treasury bonds.

Bitcoin (BTC) and the Consumption Capital Asset Pricing Model

Bitcoin is more of a speculative asset than a haven asset. It’s not particularly good at storing value like gold or cash, but it does make for an excellent hedge against inflation and market volatility.

When we think about investing in other assets, we often consider whether each one will be able to protect our capital from risk factors such as inflation or bear markets. The same applies to Bitcoin: investors can use Bitcoin as part of their portfolio to mitigate their risk exposure when investing in traditional assets like stocks and bonds. 

In addition, cryptocurrencies are also useful during bull markets because they allow you to take advantage of price fluctuations without actually selling any assets—all earning interest on your holdings simultaneously. Cryptocurrencies can serve as an effective hedge against recessionary periods by providing investors. Access to alternative income streams outside of traditional ones like real estate or stock market investments may go down significantly during economic downturns.

Final Words

This study shows that bitcoin is unsuitable as a store of value or haven asset, but you can use it to hedge against inflation risk. We have demonstrated that the dynamic hedging ability of bitcoin is superior to gold’s and provides an opportunity for investors who want to diversify their portfolios.

Bitcoin has been criticized for its high volatility and lack of correlation with traditional assets like stocks and bonds. However, we believe these features will become less relevant as more people learn about cryptocurrencies and adopt them as part of their investment portfolios.