360 Blockchain: Hallelujah for Hedges

Yesterday, 360 Blockchain Inc. (CSE: CODE) dropped some news that we’ve been waiting ages to hear. After what seems like an eternity, it’s finally happened. Hedges are coming to cryptocurrency miners.

Hedging, in our eyes, is absolutely essential in the cryptocurrency market. Especially when it comes to large miners that are generating millions of dollars each year in mined coins. Without a hedge, the volatility seen in the price of bitcoin and other currencies can turn fatal if miners aren’t careful. However, this hasn’t prevented the vast majority from ignoring the concept entirely. This needs to change.


360 Blockchain: Hallelujah for Hedges


So, what exactly is a hedge?

We recognize that we have many new investors and traders that follow our publication. To many of you, the idea of a hedge may be rather abstract in terms of investing. We’re here to help you out.

So what exactly is a hedge? A hedge is a means of protecting capital in the simplest terms. If you were to ask Investopedia, they would explain it as, “A hedge is an investment to reduce the risk of adverse price movements in an asset. Normally, a hedge consists of taking an offsetting position in a related security, such as a futures contract.”

Hedges are used by professional traders and investors to offset potential losses that may occur. They are also used as a means of ‘locking in’ profit, and are used as a tool to eliminate downside risk at the same time.

“A hedge is an investment to reduce the risk of adverse price movements in an asset.” – Investopedia

In terms of format, there are a number of methods and strategies that can be utilized as a hedge. For instance, the use of call or put options can be utilized to secure the gains made on an investment. By purchasing these options, depending on the format, it can determine either a minimum gain or maximum loss. These are especially useful when used on an equity that has perceived future volatility.

Bringing it back to bitcoin, this is where futures contracts come in to play. Or alternatively, a specialized solution developed by 360 Blockchain.

360 Blockchain’s solution to a sector wide issue

What has 360 Blockchain developed to provide a hedge in the market? Short answer: absolutely nothing. Instead, it’s found an even better solution. It’s majority owned subsidiary SV CryptoLab will instead be holding a ‘hackathon’. Essentially it’s an event that invites members of the blockchain community to develop a defined program. The top three submissions will then earn prizes, and SV CryptoLab presumably will win the rights to this programming.

The reason that this solution is via the best possible method is simple. Due to the current culture within the tech industry, the company is able to acquire this technology for extremely cheap. In total, the three prizes the firm has promised to dole out are worth approximately $2,000. If 360 or its subsidiary were to develop this software themselves, the expense of such a project would instead be many multiples higher.

The hackathon itself begins today, with the top prize being a $1,000 Amazon or Costco gift card for the winning developer. Not a bad price to pay, for a program that could save them hundreds of thousands of dollars. Not to mention the value it could provide when being shopped around to competitors.

More information related to this event can be found via SV CryptoLab, found here. There is currently a link at the top right of the page for their Winter 2018 Hackathon, however it is not yet live.


A relatable example of the value in hedging

To drive home the value of hedging in the cryptocurrency sector, let’s take a quick look at HIVE Blockchain. If you’re an avid reader, you know that we identified an issue related to the way in which they record revenues. That article can be found here. Rather than convert their coins to fiat currency, HIVE records revenues based on the USD value of the coin at the time of mining. Further to this, they have yet to sell a single coin.

Where does hedging come in to play in such an instance? Let’s look at it like this.

HIVE Blockchain's sale of its assets.
HIVE Blockchain’s sale of its assets.

The total value of Hive Blockchain’s digital assets as of December 31, 2017 was $5,827,805. Of that, $5,296,327 was in Ethereum. With the revenues being re-evaluated as of December 31, 2017 to reflect the present price for the reporting period, we are able to work back the calculation. Based on the closing price of $722.98 for Ethereum, we know that the company had roughly 7,325.68951 ETH at the end of the reporting period.

At the current market price of $586.08, this asset is now worth $4,293,440.11. This represent a seven figure loss due to the companies lack of hedging. This doesn’t even take in to account asset loss from the high point of $1,424 per ETH to the present level. Through the use of hedging the company would have seen a significant difference in the declining value of it’s asset.

More than anything, the lack of hedging is a disservice to shareholders.


Closing Remarks

For one reason or another, it appears that the use of hedges in the cryptocurrency world has been close to non existent. Why this is is mystifying to us, as it is a basic investing principal. Although these firms are dealing in the multi millions with their assets, the management mentality up until this point in time has not been on par with this class.

The short of it, is that we are excited with what 360 Blockchain may bring to the market as a result of this hackathon. If they get it right the first time, the money in which it will save the company is difficult to quantify at this point in time, however we know it will likely be significant. The potential for product licensing alone to firms such as HIVE are what entices us to follow along as this event unfolds over the next several days. By all accounts, 360 Blockchain has hit the nail on the head for what this sector is in desperate need of.

Protect your investments. Use a hedge. Dive Deep.


Information for this analysis was found via Sedar, The CSE, Investopedia, HIVE Blockchain Technologies Inc, SV CryptoLab, and 360 Blockchain Inc. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security.