New hashprice-based derivatives instrument gives Bitcoin miners another way to hedge
Better luck next time? Luxor’s OTC Bitcoin mining derivatives could offer miners “a much needed tool to hedge their mining operations.”
Hedging against downside has always been a challenge for Bitcoin BTC miners, and the current bear market is a perfect example of how energy prices and crypto market volatility can negatively impact miners’ profit margins and their ability to stay solvent.
Oftentimes, institutional and retail traders use BTC-, stablecoin- and U.S. dollar-settled derivatives (options and futures contracts) to create hedging strategies that mitigate downside in Bitcoin price, and now an instrument specific to Bitcoin mining is available to miners.
The Oct. 10 launch of Luxor Hashprice NDF, a non-deliverable forward contract, will allow miners to hedge their exposure to Bitcoin price and the energy costs associated with mining.
According to Luxor Technologies, “hashprice” is the revenue BTC miners earn per unit of hash rate, which is the total computational power deployed by miners processing transactions on a proof-of-work network.
The over-the-counter derivatives contracts are settled using Luxor’s Bitcoin Hashprice Index, and investors can choose to settle in dollar-pegged stablecoins, dollars or BTC. A primary benefit of the instrument is that contract sellers can lock in Bitcoin mining revenue, while contract buyers can tap into the upside potential of Bitcoin mining without the need for physical exposure.
Related: Will the Bitcoin mining industry collapse? Analysts explain why crisis is really opportunity
According to Luxor co-founder and CEO Nick Hansen:
“These products are a major step in the Luxor roadmap and something we have analyzed deeply since the company’s genesis; hashprice derivatives are the apotheosis of our vision of hashrate as an asset class, something we’ve been pioneering since we introduced hashprice with the launch of Hashrate Index in 2020.”
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