Holging Strategy
Hold-to-Hedge Strategy for Zero-Downside Hedging
What is Holging?
Holging (Hold-to-Hedge) is Shordex’s flagship strategy that allows users to hedge Bitcoin exposure with Shortbit while harnessing market volatility for guaranteed upside. Unlike traditional hedging, Holging offers two distinct approaches:
Passive Holging: Buy and hold Shortbit indefinitely, leveraging the Impermanent Gain effect.
Active Holging: Dynamically rebalance your portfolio to maintain a 1:1 ratio of Bitcoin/Shortbit value when price moves exceed a user-defined threshold (e.g., 5%).
Both strategies ensure zero liquidation risk, zero downside, and asymmetric upside—but with different risk-return profiles.
Passive Holging: Simplicity Meets Asymmetric Returns
Mechanics:
Buy Shortbit equal to your Bitcoin exposure (e.g., $10,000 of Bitcoin + $10,000 of Shortbit).
Hold indefinitely. Capitalize on Impermanent Gain. No rebalancing.
Outcome:
Portfolio value grows whenever Bitcoin deviates from its entry price via the Impermanent Gain. The larger the deviation, the larger the gain. Modeling value function:
where x = Current Bitcoin Price / Entry Bitcoin Price.
Example: If Bitcoin doubles (x = 2), portfolio value grows to $20,000×(2 + 0.5) / 2 = $25,000.
Best For:
Hodlers - long-term holders.
Users seeking hands-off hedging.
Holging perfectly works for Hodlers!
Active Holging: Volatility as a Yield Engine
Mechanics:
Set a rebalancing threshold (e.g., 5% price change).
When Bitcoin’s price deviates beyond the threshold, rebalance to restore a 1:1 BTC/Shortbit value ratio.
Key Insights:
Volatility-Driven Returns: Profit depends on the frequency and magnitude of Bitcoin’s price swings, not its direction.
Fixed-Income Analogy: Like earning coupons from bond volatility, Active Holging generates returns proportional to Bitcoin’s volatility.
Always Profitable: Even after rebalancing costs, the strategy’s upside is mathematically guaranteed.
Active Holging in Action: A 3-Step Walkthrough
Assumptions:
Initial Portfolio: $10,000 of Bitcoin + $10,000 of Shortbit = $20,000.
Rebalancing Threshold: 5% of Bitcoin price move (from a previous rebalancing).
Transaction Cost: 0.04% per trade (applied to both Bitcoin and Shortbit trades).
Step 1: Bitcoin Rises 20%
New Bitcoin Value: $10,000×1.20 = $12,000.
New Shortbit Value: $10,000÷1.20 = $8,333.33.
Total Value: $12,000 + $8,333.33 = $20,333.33.
Rebalance: Sell $1,833.33 of Bitcoin and buy $1,833.33 of Shortbit to restore 1:1 ratio.
Transaction Cost: 0.04% × $1,833.33 × 2 = $1.47.
Post-Rebalance Portfolio: $10,166.67 of Bitcoin + $10,166.67 of Shortbit.
Step 2: Bitcoin Drops 30%
New BTC Value: $10,166.67×0.70 = $7,116.67.
New Shortbit Value: $10,166.67÷0.70 = $14,523.81.
Total Value: $7,116.67 + $14,523.81 = $21,640.48.
Rebalance: Sell $3,703.57 of Shortbit and buy $3,703.57 of Bitcoin.
Transaction Cost: 0.04% × $3,703.57 × 2 = $2.96.
Post-Rebalance Portfolio: $10,820.24 of Bitcoin + $10,820.24 of Shortbit.
Step 3: Bitcoin Rises 25%
New BTC Value: $10,820.24×1.25 = $13,525.30.
New Shortbit Value: $10,820.24÷1.25 = $8,656.19.
Total Value: $13,525.30 + $8,656.19 = $22,181.49.
Rebalance: Sell $2,434.55 of Bitcoin and buy $2,434.55 of Shortbit.
Transaction Cost: 0.04% × $2,434.55 × 2 = $1.95.
Final Portfolio Value: Capitalized Gain ($22,181.49) - Total Costs ($1.47 + $2.96 + $1.95) = $22,175.11.
That is, we got 10.88% gain!
Passive vs Active Strategy Return Comparison
Passive Portfolio Value: $20,000×(1.2×0.7×1.25 + 1/(1.2×0.7×1.25)) / 2 = $22,857.14. Wow! Passive strategy outdid the active strategy! Is there something wrong with the active strategy? Of course, no - although active strategy showed lower intermediate return, it is better positioned for future returns, particularly if Bitcoin price will return to its initial value: active strategy will show a substantial upside while passive strategy will produce just pure zero return.
Active sacrifices some upside for stability but still guarantees profit and higher future return.
Volatility vs. Rebalancing Cost: The Math
Using Bitcoin’s daily volatility (σ), we can estimate overall impact of rebalancing:
Rebalancing frequency and cost:
Formula: Expected rebalances per day
Example: If Bitcoin’s daily σ = 5%, and threshold = 5%:
Probability of exceeding threshold ≈ 31.7% (from normal distribution).
Expected daily rebalances ≈ 0.634 → about 19 rebalances/month.
Rebalancing Cost = 0.04% of rebalancing value.
Daily rebalancing value: 0.634 x (1.05 - 1/1.05) = 6.19% of portfolio value
Daily rebalancing cost: 6.19% x 0.04% = 0.0025% of portfolio value
Daily gross return: 0.634 x {(1.05 + 1/1.05) / 2 - 1} = 0.075% of portfolio value.
Daily net return: 0.075% - 0.0025% = 0.0725% of portfolio value.
For 5% daily Bitcoin price volatility we came up with 26.1% annual return!
Key Takeaway: Higher volatility = More rebalances = Higher returns (but slightly higher costs).
Who Should Use Active Holging?
Market Makers: Maintain 1:1 exposure to continuously capitalize on Impermanent Gain while perfectly hedging directional risk on deployed capital.
Volatility Traders: Monetize choppy markets without predicting price direction.
Institutions: Generate stable returns from Bitcoin’s volatility for treasury management.
Why Holging Beats Everything Else
Returns
High, asymmetric
Stable, volatility-driven
Negative
Low
Downside Risk
None
None
High
Moderate
Maintenance
Zero
Minimal
High
High
Costs
None
Low (0.001%-0.005% daily)
High
High
Next Steps:
Experiment with Holging in our Alpha Testing Portal.
Dive deeper into Impermanent Gain for passive strategy math.
Join the Shordex Telegram to develop your Holging strategy.
No downside. No liquidation. Just volatility harvested as yield.
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