How Can Retail Investors Hedge Against Crypto Volatility

How Can Retail Investors Hedge Against Crypto Volatility

In 2021, cryptocurrency markets have firmly returned to bull territory, with bitcoin outperforming stocks and commodities in early October to become the best-performing asset of 2021. Will this prove to be a watershed year for mass adoption –a long-held vision for many in the industry?

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Q3 2021 hedge fund letters, conferences and more

While investors from all segments, including institutions, have flocked to cryptocurrency this year, the volatility factor is still worrisome for many. Bitcoin has delivered in the long term, but newcomers –and especially retail investors– often struggle with the idea of “timing” their purchases.

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TCI David Marcus Investment ResearchThe Children's Investment Fund Management LLP is a London-based hedge fund firm better known by its acronym TCI. Founded by Sir Chris Hohn in 2003, the fund has a global mandate and supports the Children's Investment Fund Foundation (CIFF). Q3 2021 hedge fund letters, conferences and more The CIFF was established in 2002 by Hohn Read More

After all, people investing in crypto do so expecting a return. We spoke with co-founder and managing partner of Nexo, Antoni Trenchev, about how cryptocurrency investors can hedge against the inherent volatility of these digital assets.

Besides Volatility, What Other Factors Are There Currently Deterring Investors To Plunge Into Crypto?

Despite the crypto market’s exponential growth in the past few years, many are still skeptical about it due to this lack of understanding and a dearth of easily digestible information.

The crypto space is still associated with hacks and scams, and it can be difficult to disprove such claims in front of a wider audience. Even within the cryptocurrency community, high-profile incidents are writ large on the collective memory.

As a result, newcomers tend to be bombarded with years-old axioms such as “not your keys, not your crypto,” implying that unless a user goes out and procures a state-of-the-art hardware wallet, they’re simply asking to be scammed.

A recent Twitter debate highlighted the issue, with one influencer stating that bringing up incidents that occurred in 2013 as a reason not to use today’s centralized services is “just extreme PTSD at this point.”

How Can The Crypto Industry Boost Mainstream Adoption?

Inclusivity, coupled with investor protection and transparency will clear up a lot of regulatory issues, making cryptocurrencies even more accessible to the public and allowing them to profit from these fast-growing markets.

I think we’re well on our way to promoting this kind of inclusivity in the financial and investment world already, and I’m very excited about the evolution of crypto to more closely resemble the security of traditional finance.

Nexo Is Offering Users The Ability To Earn Up To 12% Interest On Their Holdings. Could You Elaborate On The Company Model?

Many projects are now offering investors the opportunity to earn yields on their crypto investments that go far beyond anything they could earn, by keeping their funds in a bank account.

Generating yield happens in two ways. Our primary method of generating our yields is through the lending side of our business; we lend out the funds we receive through our Earn service to our borrowing clients –It’s perhaps the oldest business model in the world.

We also offer loans in cash or stablecoins, with automatic approval and no credit checks.

What Happens If The Company Finds That The Demand For Yield On Deposits Is Higher Than That Of Its Lending Arm?

In these scenarios, we engage in market-neutral trading strategies such as basis trading and arbitrage between different asset classes.

However, over the years we have seen pretty much even demand for crypto-backed credit in both bull and bear scenarios, so our business model allows the company to sustain itself almost completely.

The earning opportunities for depositing funds can help to overcome any reservations that newer investors may have around the volatility of cryptocurrencies.

After all, most newcomers enter crypto with the perception that they buy, hold, and wait for their investment to go up. By taking advantage of compounding yields of up to 12%, investors not only profit in a bull market, but the returns help to hedge against volatility during market downturns.

How Did Nexo Deal With The 2018 Crypto Plunge?

We launched in one of the most drastic downturns when cryptocurrencies had lost about 80% of their value from January to September of that year. Despite this, we had so many loan requests, and we were among the first lenders to create an Earn product to generate liquidity for its borrowing clients.

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