Are Digital Assets the New Way To Hedge?


If you invest in traditional markets such as the stock market, you know the importance of a healthy market or bullish (up trending market/green). You also know the importance of allowing your money to compound or make interest. But what happens when the stock market takes a dive or becomes bearish (down trending market/red)? Do you panic and sell all your assets, or do you change your investment strategy?  Obviously if you are holding long-term a bearish market could be a benefit due to being able to buy companies at a low price and hold when they increase. In addition, you can also benefit in a bearish or any market if you are short trading or option trading, depending on your strategies and volumes in the market.  But what do you do in a bearish market and/or a market potentially going into a recession?

One of the traditional ways that most people hedge in a bearish market is to invest into commodities (oil, gas, wheat, etc.) or precious metal. These metals are gold, silver, platinum, nickel, etc. Bonds sometimes depending on inflation.  Although, those mentioned above are not bad, I believe there is another way to hedge especially in this environment and market. With the invention of digital assets and the recent trends of Bitcoin reaching new highs why would one not think that cryptocurrency could be a new way to hedge and to protect your assets. Digital assets and exchanges do have high volatility but understanding the trends in these markets could make one financially stable.

Another reason why digital assets could be a good way to hedge is due to the decentralized nature of crypto. For instance, you can buy your digital assets from a centralized exchange or CEX (like Coinbase, Binance or Crypto.com) and hold your assets in a digital wallet (like Meta Mask, etc.) or hard wallet (like Ledger, etc.). Therefore, utilizing a centralized service and putting it in a decentralized wallet.  Another way is utilizing decentralized exchanges or DEX (like Uniswap, Pancake swap or Sushi Swap, etc.) from the beginning to buy and hold, trade, leverage, stake or pool your digital assets. DEX allows one to trade utilizing a peer-to-peer system and cuts out the traditional use of banking systems.  DEX requires digital assets like ETH, BTC or stable coins.

I know the elephant in the room are gas fees. Gas fees can potentially make buying or exchanging a digital asset expensive, depending on the network you use or asset. Gas fees are like a congested freeway and the more congested the more you must pay to get your transaction done. Fortunately, with the push toward more friendly environmental efforts globally, traditional systems used on the blockchain are changing to more consumer friendly and eco-friendly systems. Such as the Lightning Network, which promotes scalable, quick, and cheaper bitcoin transactions.  Ethereum 2.0, now called consensus layer, will also promote scalability, better security and be more sustainable utilizing a Proof of Stake (POS) system. Solana is a cheap blockchain network that traditionally has lower gas fees. Due to these current changes, most digital assets are now trying to find ways to make gas fees cheaper and better for the consumer.

Finally, liquidity which simply implies that coins can be transferred to other coins or for Fiat (cash).  If you need your money right away the last thing you want is a bank holding your money up during transactions. With digital assets all you need is the internet, and you can exchange for other coins or change it to Fiat funds. Arguably the best thing about digital assets is being able to move your money faster, without utilizing a bank. Cryptocurrency or digital assets are still in their infant stage but warrants serious consideration to be utilized in uncertain markets and hedging, in my opinion. When dealing with assets in any case you should always talk to your financial advisor and invest at your own risk.

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TheeCryptoDoc
TheeCryptoDoc

Tech Junky, NFT Enthusiast, Entrepreneur, Crypto Educator, Dentist, Husband, Father of One.


Digital Assets, Stock Talk, Taxes, ETC
Digital Assets, Stock Talk, Taxes, ETC

With uncertainty in the markets. Many investors choose to hedge their assets. Traditionally this would be done with precious metals, commodities or bonds. But what if digital assets could also be a new way to hedge in this type of market, even if volatile. This post will explain why I think digital assets could be a good strategy for hedging. In addition, this blog will discuss stocks and tax information. Disclaimer: Please remember to invest at your own risk and that I am not a financial advisor.

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