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Holding bitcoins to protect against unacceptable losses with shorts is a very bad idea. Such holding assumes that increase in stock price for mining companies m
by _0w8t 4y ago
Holding bitcoins to protect against unacceptable losses with shorts is a very bad idea. Such holding assumes that increase in stock price for mining companies may only come from bitcoin price increase. Yet the companies are exposed to many other externalities like local electricity prices or regulation changes that are independent in general from bitcoin prices.
A proper insurance to limit the losses in case of huge increase in the asset price should be implemented with options or other financial instruments specially designed for this.
- Thorrez 4y agoI don't see how electricity or regulation could make the price go up much. Electricity can only go to 0, it can't realistically go negative. It sounds like from the article, that hardware is a bigger cost than electricity. And if electricity goes significantly down, it'll go down for other miners as well, meaning they'll just get more competition over the same fixed amount of the bitcoin pie. The article points out that even if they mined all the unmined bitcoins at the same percent they're doing now, they still won't reach their market cap. So even if electricity is 0, they still can't make enough profit to hit their market cap. You're right though that this isn't a foolproof way to eliminate large risks. I'm very far from an expert in this area; I've never done any shorting or options trading.