Trading Tutorial 2: Having your cake and trading it too

How to encash your coin holdings but still retain potential coin profits from a bullish upswing

Photo by Will Echols on Unsplash

All projects are subject to working capital needs whether coin prices go up or down. In these depressed markets, some fortunate projects would have sold their BTC or ETH early on for their runway of cash needs while less lucky projects are caught in a dilemma; either wait for a recovery in prices to sell or bite the bullet and liquidate at low prices.

Biting the bullet can be frustrating. If prices bounce after selling, the project would have lost potential profits on the coin; precious capital which could be important for marketing or development. (Note that mid Sep 2017 was the start of the epic rally into Jan 2018)

To avoid such frustration, projects may use two key methods to keep the exposure to potential upside of their coin holdings while still being able to sell their coin for cash to meet working capital needs.

1. Long futures pairing

When selling coin for cash, you can simultaneously initiate a long position in the futures (at a similar price to your spot sale or sometimes even better if the contract is in backwardation). This way, you receive cash but your net position is unchanged. You have sold physical coin for cash but you have an equivalent long position through the futures.

If prices then rise rapidly, you would profit from the higher price through the long futures position. Profit which you would have missed out on if you had sold your coin without a futures pairing. Conversely, you will risk losses when prices fall as you would effectively still own the same amount of coin.

2. Buy a call option

An alternative method is to buy a call option against your coin sale. This way, you would profit from a price rise and you would not incur further losses if prices fall (a key advantage over the futures method).

However, there are two downsides to this strategy. Firstly, there is a cost to purchasing an option. Secondly, options are subject to expiry so the profit potential is temporary.

Both methods are executable through our trading desk. Please feel free to ping us for details on process and requirements.

This is part 2 of QCP’s Trading Tutorial series, check out part 1 here.

DISCLAIMER

The information in this post (the “Information”) is presented in summary form, and is solely for informational purposes, and does not purport to be complete. The information is not — nor is it intended to be — an offer to sell, or a solicitation of any offers to purchase any securities. The information does not constitute, and should not be treated as investment advice. The Information does not account for the specific investment objectives, financial situation(s), or any other particular needs of any prospective investor. No representation or warranty is hereby made, expressed or implied, with regards to the fairness, correctness, accuracy, reasonableness or completeness of the Information, nor does QCP Capital undertake to update the Information. Under no circumstances should the Information be regarded by any investor and/or individual as a substitute for their own judgement or research. All views expressed herein should not be relied upon as advice, and individuals and/or investors should seek their own legal, regulatory, tax, investment, accounting, financial, and any other relevant advice.