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Why own Bitcoin when you can trade futures contracts?

Some folks may be looking at the price of Bitcoin, near its previous and most recent all-time high just under $20,000, and wonder if it’s too late to buy Bitcoin and whether it’s better to “simply” stick to futures trading.

Of course, there is no telling where the price of Bitcoin might go. For those who believe Bitcoin will rise to $50k, $100k or even reach a valuation of a million US dollars per unit, buying in at $20k may not be so unattractive. Others who anticipate a price correction might want to short Bitcoin and buy in when the price has reached bottom.

But the choice between futures trading and actually buying and owning Bitcoin is a false one. Unless you’re trading with a lot of Bitcoin, day trading the asset may not be your best game plan. Instead, to build up capital you might want to save your Bitcoin holdings in a BTC savings account to collect interest and each time the coin drops significantly in value you purchase more.

To many in the crypto space, buying Bitcoin is more than just investing in the hope the price will one day skyrocket. Owning Bitcoin is also about truly owning your own wealth and being able to store your wealth away from anyone or any future rogue government that might want to seize your assets. For others, Bitcoin represents an insurance policy or hedge against serious fiat currency devaluations.

How to make the most of futures trading

Once you do own Bitcoin, though, futures trading can be an effective way to hedge against risk. For example, if you own $10,000 USD worth of Bitcoin and you anticipate a significant price drop, but you do not want to sell your Bitcoin, you could use some of your Bitcoin to go short on Bitcoin on the AAX’s BTC-settled futures market. You could allocate $1,000 worth of Bitcoin and go short with 10x leverage. This way, if the coin drops by 5% and your original BTC holdings drop by 5% in value as well, your contracts can yield you 10 x 5% = 50% in profits. In other words, while your $10,000 worth of Bitcoin has lost $500 in value, your $1,000 worth of contracts has yielded you $500.

Another way to approach futures is to keep it separate from your Bitcoin holdings. For example, you could own Bitcoin as a HODLer, and use USDT to trade BTC futures to simply take advantage of Bitcoin’s volatility. Whenever you earn a solid amount, for example, after going short during a market crash, you can then choose to use your USDT winnings to purchase more Bitcoin for the long term.

Bitcoin or Futures?

All in all, we suggest not to confuse owning Bitcoin with trading Bitcoin futures contracts. Futures trading can be very profitable, because you can trade with leverage, but it’s also possible to get liquidated and lose your collateral. Holding Bitcoin is different: the price may drop, but as long as you don’t sell, there is always still the possibility that the market recovers and lifts you back into positive territory.

When you trade futures, depending on your leverage, your timeframe also changes. Trading with 50x leverage for example, which means a 1% change in price means a 50% change in PnL for you, requires you to pay close attention to the market on a second-by-second basis. Trading with 3x leverage allows you to take it easy.

If you want to improve your trading skills, we suggest you check our AAX’s Crypto Trading Dojo, where you can learn how to read charts, conduct technical analysis, and refine your trading style.

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