Definition ∞ Defensive Hedging is an investment strategy designed to reduce the potential for losses in an asset or portfolio during adverse market conditions. This approach involves taking offsetting positions to mitigate specific risks, such as price declines or currency fluctuations. It prioritizes capital preservation over maximizing gains.
Context ∞ In the volatile cryptocurrency market, Defensive Hedging strategies are crucial for institutional investors and sophisticated traders seeking to manage exposure to price swings. Common methods include using options, futures, or stablecoins to offset potential depreciation in digital asset holdings. A key discussion point involves the effectiveness of various hedging instruments in an evolving regulatory landscape and during periods of extreme market stress.
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