Better luck next time? Luxor’s Bitcoin OTC mining derivatives could offer miners “a much-needed tool for hedging their mining operations.”
Hedging against downsides 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 remain solvent.
Institutional and retail traders often use BTC, stablecoins, and US dollar-settled derivatives (options and futures contracts) to create hedging strategies that mitigate the decline in the price of Bitcoin, and now a specific instrument for mining Bitcoin. Bitcoin is available to miners.
The launch on October 10 of the Luxor Hashprice NDF, a non-deliverable forward contract, will allow miners to hedge their exposure to the price of Bitcoin and the energy costs associated with mining.
According to Luxor Technologies, “hash price” 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.
OTC derivative contracts are settled using the Luxor Bitcoin Hashprice Index, and investors can choose to settle them in dollar-pegged stablecoins, USD or BTC. A primary benefit of the instrument is that contract sellers can lock in Bitcoin mining revenue, while contract buyers can take advantage of the upside potential of Bitcoin mining without the need for physical exposure.
According to Luxor co-founder and CEO Nick Hansen:
“These products are an important step in Luxor’s roadmap and something we have looked at deeply since the company’s inception; Hashprice derivatives are the apotheosis of our vision of hashrate as an asset class, something we have pioneered since introducing hashprice with the launch of the Hashrate Index in 2020.”
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