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Author: Admin | 2025-04-28
Hedging is a relatively new concept in the Bitcoin mining industry. Until recently, Bitcoin miners were unable to hedge their hashrate production and consequently their revenue. But that’s all changed with Luxor’s Hashrate Forwards. Miners now have access to a suite of hedging instruments to de-risk, optimize and grow their operations.However, a key question remains: how much hashrate production should a Bitcoin mining company hedge? In today’s post, we explore that question.How Much Production Do Commodity Producers Hedge?The obvious first question to ask is: how much do producers of other commodities hedge their revenue? The table below shows hedge ratio estimates for different commodity producers from a range of sources:Industry Hedge RatiosWhy Do Commodity Producers Hedge or Not Hedge? Much like any other corporate activity, hedging is intended to support a company’s overall goals and objectives. Typically, commodity producers hedge their production to reduce price risk and obtain revenue certainty. Commodity producers are experts in production and operations, not necessarily in speculative trading or forecasting market variables into the future. Hedging allows commodity producers to focus on core operational competencies and minimize risks.Several benefits accrue to companies who hedge, namely lower volatility and higher certainty in cash flows. In general, these two factors increase valuation metrics and access to financing by reducing the cost of capital. Most importantly, companies who hedge obtain downside protection which can help them survive bear markets.However, there are reasons for commodity producers choosing not to hedge their production. Perhaps the producer wants exposure to the price and revenue volatility. This could be the case if a company has information to suggest future prices will be higher than market expectations, or if the producer is already unprofitable and trying to gamble their way out of financial distress.A commodity producer may also decide not to hedge if their business operations already provide a natural hedge. For example, if a commodity’s price fluctuates predictably with its costs, a company that does not hedge will already have profit margin certainty. This is not the case for Bitcoin miners. Some argue that shareholders can hedge and diversify their investments themselves. This may be the case, but typically it is more cost efficient for a company to hedge instead of each individual investor, many of which do not have access to appropriate hedging instruments. So What About Bitcoin Miners?A Bitcoin miner’s hedging decision will depend on several economic factors such as
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