Why Hedging With Bitcoin Makes Sense Even For Non-Believers


Conor Maloney

February 7, 2019

$1 million or zero – with such wildly differing estimates being constantly made by analysts and observers, Bitcoin is the bet of the century. Skeptics believe that it will tank to nothing, while some maximalists believe we’ll be seeing seven-figure valuations on the price of Bitcoin within our lifetime.

Two points.


Zero Sounds Unlikely

It’s unlikely that it will go to zero. In the face of harsh regulation and opposition from all world governments and major banking institution, Bitcoin is more widely-adopted than ever and still worth thousands of dollars per unit. It’s not a stock or a company that can be shut down or easily discredited, but a decentralized network with thousands of international nodes run by anonymous or pseudonymous participants.

Besides, as Kenetic Capital co-founder Jehan Chu said:

Bitcoin will never go to zero because it is a hedge against falling currencies, inefficient economies and increasingly systemic inequality. Bitcoin represents the currency of a better future for society, and people will always invest in their future.

Here’s the thing – even if you think there’s a high chance that it will go to zero, it could still be worth seriously considering owning at least one BTC.

My second point:

Risk Reward Ratio Makes It A Powerful Hedge

Let’s say you’re skeptical of the whole thing. You’ve looked into it, and you’re not sold on the notion that Bitcoin will ever recover. If you’re interested in investing (in general) and you have a few thousand (or even a few hundred) dollars to easily spare, consider the following:

If you invest it and Bitcoin tanks forever, you’ve lost 100% of your investment. Sucks, right? It does. But how much could you gain if it skyrockets again? We’re now in the longest bear market in crypto history to date. Let’s take a look at other examples of people buying in bear markets.

  • April 2013: Bitcoin crashes 87% from $1,630 to $152.40, the bear market lasts over 400 days. Then it surges to $1,350. Bear Market ROI: 665%
  • March 2017: Bitcoin crashes from $1,350 to $899. Then it surges to $2,760. Bear Market ROI: 209%

Of course, that’s just taking into account buying at ATH and selling at ATL for each consecutive crash.

If you simply bought and held through the crashes, or took profits and bought near the ATL, your ROI would be, quite frankly, insane, in the tens of thousands of percent depending on when you bought in. While some say Bitcoin is doomed to tank, others insist that it could continue to grow at the pace it has been growing at for the foreseeable future.

Bitcoin Reduces Portfolio Volatility

You heard that right, and we wrote about it here before. Fundstrats’ Thomas Lee did an interesting presentation showing how a traditional portfolio actually undergoes decreased volatility with the inclusion of the notoriously volatile cryptocurrency, simply because of how high the risk/reward ratio is.

The benefits are clear – investors who can easily afford a Bitcoin or two would perhaps do well to add some to their portfolio, just in case it does what it has always historically done and continue to see massive growth after long corrections.

When the right time to accumulate might be, nobody can say, but a hedge that increases the value of its portfolio like Bitcoin does is definitely worth taking a look at.