How to Hedge your Cryptocurrency Portfolio with Abra
Do one of these scenarios apply to you?
- You’ve generated significant gains in bitcoin that you’d like to temporarily lock in
- You’ve been paid in bitcoin (via salary, ICO, or an online marketplace) and would like to lock in the USD value of your bitcoin
- You sense the market is falling and you’d like to temporarily move your bitcoin to USD
- You want to temporarily convert bitcoin to Dollars without a bank account and with no ID
With Abra, you can easily exchange your bitcoin into USD (or PHP, EUR, CHF, etc), and then back into BTC or ETH when you’re ready. When you store USD on the Abra app, you can also withdraw those funds to a connected bank account (available only in the U.S. and Philippines and with specific limits on withdrawal amounts).
Here is an example* (with 1 BTC = $10,000, to keep it simple):
- Download Abra and complete sign up (make sure to write down your recovery phrase!)
- Transfer 1 bitcoin to Abra from an external wallet. Your total Abra portfolio balance is now $10,000.
- You instantly exchange 1 BTC into $10,000 USD (or any of the 50+ fiat currencies Abra supports) because you want to protect against a BTC market downturn. Your total Abra portfolio balance is $10,000.
THE PRICE OF BITCOIN DECREASES TO 1 BTC = $5,000
- Your Abra portfolio balance is still $10,000, because you converted your funds to USD
- You feel there is a good buying opportunity because of the dip, so you exchange your USD back into BTC. Your Abra portfolio balance is now worth 2 BTC, because 1 BTC = $5,000.
THE PRICE OF BITCOIN INCREASES TO 1 BTC = $12,000
- Your Abra portfolio balance is now worth $24,000 (2 BTC x $12,000). By converting into USD and then back into BTC at a later date, you now have $12,000 more than if you had just held BTC. At this point, you may decide to lock in the appreciation again by moving funds to USD, or diversify into ETH, for example.
Unlike most exchanges, you do not need to provide any form of identification to store USD and BTC on Abra** as we do not hold your bitcoin or USD funds, they are stored directly on your Abra App. Even your USD balance, which is similar to Tether (but better!), is based on Abra’s digital currency contracts. With Abra, you are in control of your money at all times. You can learn more on our website about why we believe this security model is superior.
Feel free to comment below and make sure your Abra app is updated to the latest version.
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* Example based on the current price of 1 BTC = $10,000 on 2/23/18. Excludes increases/decreases in the spread and/or mining fees.
** We may require identification for deposits and withdrawals via bank or credit card, when applicable
Disclaimer: Abra is not a financial advisor. This post is not intended to be financial advice, it is for information purposes only. Also, Abra makes money on exchange currency transactions within the Abra app.
Are you hedging or transferring the amount to USDT (tether)?
Hi Edmund,
We do not use Tether. 🙂 You can learn about how Abra works under the hood here: https://www.abra.com/blog/abra-launches-new-multi-signature-wallet-holding-digital-assets-using-bitcoin/
Isn’t it actually a Litecoin-based smart contract now?
Yes, our model actually uses both BTC and LTC!
How long does it take to convert Bitcoin to USD wallet within Abra? What fees are involved?
Hi Daniel, here are Abra’s fees: https://support.abra.com/hc/en-us/categories/203973548-Fees
Hi Abra,
I’m a little concerned about the Abra Wallet, but maybe understanding is off?
Is the User the only party who has their own Private Key for their Abra Wallet?
How do we export our Private Key? If Abra goes bust, we can’t access our Crypto/Funds because our Private Key will only work in Abra Ecosystem…?
What if we’ve switched our Bitcoin into USD to hedge our position, and then worst case scenario, Abra goes bust etc. Do we still actually own our underlying Bitcoins AND able to recover them somehow?
I would love to use the product, but I’m just concerned about Product Risk.
Best,
Marc
We currently do not have a way to export your private key, but when you sign up you will get a recovery phrase which you will be able to use to recover your funds if Abra ceases to exist with another wallet. Learn more here: https://www.abra.com/safety/
The question on hedging against a full company failure is a fair question. If Abra ceases, is there any recourse from the wallet holder if the platform is unavailable?
Yes, see response above. You will be able to use your recovery phrase on other platforms to recover your funds.
What other platforms? This is not on the response above, just the fact that you can re-download the application. If the application ceases to exist, how would you have access to your funds? What am I missing here?
Hey Michael,
You can take the recovery phrase in the security menu (remove the first word) and enter the phrase into any BIP 32 compatible wallet recovery input. You’ll see the private key. This is not recommended as there is no standard way to access a multisig p2sh wallet between vendors. Does that make sense?
So even if Abra ceases to exist. You can still export via the recovery phrase.
What is the time frame for exchanging crypto to U.S. and back. Instant?
Very quickly. Although it depends on the mining fees at the time of the transaction.
Presumably with the way in which the Abra smart contracts work mean that in future you might be able to transfer to other stores of value (thinking specifically of precious metals such as gold or silver) in order to hedge both crypto and fiat currency risk? I know you guys probably have a lot on your plate with launching the app at the moment (and well done for doing so – great functionality!), but are there any plans to offer other “non-currency” assets at a later date?
We don’t have any specific dates yet, but we are definitely looking into listing other asset classes, as our synthetic contracts are applicable in more traditional markets. 🙂
Is there a daily or transaction limit to the amount of Bitcoin I can hedge against a synthetic currency within Abra?
For example if I transfer 20 BTC = $200,000 USD to Abra, and I want to immediately convert my 20 BTC to USD or Euro when 20 BTC = $400,000 USD, will I encounter limitations based on the size of the transaction?
Also, is there a daily or transaction limit to the amount of Bitcoin I can exchange for the purchase of synthetic cryptocurrencies within the Abra app?
Many thanks
Peter
So when moving from BTC to synthetic USD (or any fiat currency on our platform) there are no limits. However, if you want to exchange BTC for another cryptocurrency or want to move funds outside of Abra into USD in your linked bank account, we have limits. See here: https://support.abra.com/hc/en-us/articles/115002918627-What-are-Abra-s-transaction-limits-
Is there a way to control the network fees, ie (send lower fees but expect longer transfer time or higher fees for faster transactions)?
Hi Jen,
Not yet. This is on our roadmap though.
can we now send another eth wallet to abra eth wallet?
Not yet. Currently, you can send in and out BTC to Abra.
Can do do the same Crypto to USD exchange using Litecoin or DigiByte?
Yes! You can hedge into USD from any of the cryptocurrencies we offer on our platform.
Hi, what does Abra use as the index prices provider for the various pairs?
Abra gets its digital asset prices from live mid-market rates.
Does Abra work only as an app on smart phones? or also on desktop?
The Abra app is available only on iOS and Android currently.
How can funds be stored in cash if when transferred to Abra, it is immediately turned into bitcoins?
Hi Wendell,
All the digital assets we list on our site are synthetic representations backed by BTC and LTC smart contracts. However, the amount of USD will remain stable and pegged to the USD value. That’s why it’s a hedge against the BTC market volatility.
Hi Matt,
I think the idea is great and after Tether distrust started spreading, I’m wondering…is it possible for an Abra consumer to “trust but verify”? In other words, has a third party audit been conducted and published, or is here another way to verify the investment pegging?
Hi Andrew,
Later this year, we will be migrating to a full 2 of 3 multi-signature smart contract solution that will enable a contract Oracle to sign in lieu of either counterparty. This should provide the transparency you’re looking for. More info about our contract model here: https://www.abra.com/blog/abra-launches-new-multi-signature-wallet-holding-digital-assets-using-bitcoin/
Are there TAX ramifications for switching back and forth between crypto and fiat USD?
See the tax section of our FAQs for more details: https://support.abra.com/hc/en-us/categories/360000280872-Taxes
Also please seek advice from a qualified tax professional.
Probably an easy way to so this but i cant find it. I added a cryptocurrency to my wallet “stellar”. and decided i dont want to invest in it. How can i remove it from my list of cryptos that are in the walet.
Tap the wallet icon in the right-hand corner on the main portfolio screen. You should be able to select the wallets you want to view/not view in your portfolio.