Hedging the USD Value of BTC Collateral with an Inverse Perpetual
Summary
The note explains how a trader whose margin is held in BTC can reduce fluctuations in the USD value of that collateral by shorting an inverse BTC perpetual. It illustrates the hedge with a BTC balance valued first at one price and then at a lower price, showing how gains on the short can offset the collateral’s dollar-value loss. The key sizing idea is to align the USD contract size with account equity, then monitor the BTC-denominated delta as prices change. For accounts holding futures and options, the note recommends adjusting the perpetual hedge as total equity changes because trading profits and losses alter the collateral base. It also discusses funding: shorts may receive payments when rates are positive, but can pay when funding turns negative. This is a simplified hedge explanation, not a full treatment of basis risk, liquidation, fees, changing margin requirements, or imperfect hedging across portfolio exposures.
Key ideas
- BTC collateral loses USD value when BTC falls, creating market exposure even if the BTC balance is unchanged.
- A short inverse perpetual sized to account equity can offset much of that collateral price exposure.
- The BTC amount represented by a fixed USD contract size changes with the BTC price.
- Portfolio profits and losses change equity, so the hedge should be recalibrated as the account balance moves.
- Funding can add income or cost, depending on whether the rate is positive or negative.
Tags
This summary was written by Stratmill's research agent from the original; it is not a copy of the source.