CRYPTORY
is a scalable system of distributed computing that allows
you to earn a guaranteed stable yield on your investment.
Our powerful computing system is optimized for mining Bitcoins,
one of the most common decentralized currencies.
How does CRYPTORY® manage to provide a stable and predictable increase in income despite the fluctuation in the Bitcoins per US Dollar exchange rate?
The short answer to this question — Hedging. Still don’t understand? … Don’t worry! In this short article we will provide an example of the financial mechanism we use to minimize risks in the Bitcoin exchange rate.
Since the first century, civilizations have used some form of derivative financial instruments. Today, hedging has become so complex, that even our own fund managers would be hard pressed to explain how hedging plays out in different markets. So,if you are not familiar with the workings of the modern economy, this word might intimidate you. The good news is that our hedging strategy is very straightforward; so simple that even a schoolboy could understand it.
Consider that you have multiple currencies and each of these is constantly jumping the other in value. If you decide to put all of your savings into a single currency, you have tied all of your risks to the value of that one currency. If, on the other hand, you spread your savings around to multiple currencies, you have reduced your risks.
For example, let’s say you own shares in a company. You are nervous about how that company is going to perform, so you decide to diversify and buy shares in multiple companies to spread out your potential for loss or gain. Basically, this is a simple kind of hedging.
Thus, the essence of hedging is to reduce the risk of failure while offsetting potential losses or gains.
If you were to hide your assets under a bush for safekeeping, you would not be afraid of losing it and you can count on it being there waiting for you. But the truth is, you have given up the opportunity to grow your money and the potential for any pleasant surprises that might come with taking a risk. Hedging is the lack of surprises.
Let’s illustrate the point further with more relevant examples. Watch out! You might believe there is a mistake or magic taking place. But really it's just math. We have simplified all the numbers to keep the calculations basic--so you can focus onthe concept. In reality, it is a bit more complex than the example.
Let’s assume a monthly profit of 10% from initial deposit. Suppose we have the two investors: Ben and Douglas. Ben has deposited 1 Bitcoin (BTC) and Douglas has deposited $ 1,000. They will withdraw their deposits and interest a month later. In this scenario, the Bitcoin exchange rate, at the time they made their deposit with CRYPTORY®, was $ 1,000 per 1 Bitcoin. At the end of the month, when Ben and Douglas decide to withdraw their principal deposit and interests: Ben should get 1.1 BTC and Douglas — $ 1,100. Let’s say for this 1 month, we have generated a 0.2 BTC. If, at the end of a month, the exchange rate has not changed — 0.2 BTC can be divided into 0.1 BTC and $100 USD because the exchange rate is 1BTC/$1,000. So it makes sense to pay to our investors $1,100 and 1.1 BTC.
«Okay», you say, «But what about the fluctuation in the exchange rate? What if the exchange rate drops? The money generated by mining 0.2 BTC is not enough to pay the return on Douglas’s interest!?»
Now imagine that at the very beginning of the month, when exchange rate was 1BTC/$1,000, Ben deposited 1 Bitcoin, and we exchanged 0.1 BTC from his deposit for $100 USD.
The result was that we have 0.9 BTC and $100 earlier in the month. We work until the end of the month and then ... oops, there is a drop in the exchange rate! The Bitcoin rate of exchange drops to $500 per 1BTC which means one Bitcoin = $500USD!However, we are still able to fulfill the conditions of the contract with Ben and Douglas:
Now calculate everything that CRYPTORY® has: First, it has the 0.2 BTC generated despite the falling of the market: Exchange rate variations do not affect mining. Also we have 0.9 BTC (Bob’s deposit minus 0.1 BTC (which early in the month we exchanged to $100). So we have 0.2 BTC + 0.9 BTC = 1.1 BTC. Also, we have $1,000 (Douglas’s Deposit) + $100 (0.1 BTC, which was exchanged early in the month). So, in total we have $1,100 and 1.1 BTC. The 1.1 BTC we give to Bob and the $ 1,100 goes to Douglas. The terms of the contract are fulfilled.
«Well,» you say, «What about growth in the exchange rate?» – It works the same, in either scenario. Try to do these calculations with any finite exchange rate. Even if the Bitcoin rate rises or falls a million times, it will not affect the amount you deduced. The result will always be the same: investors get their guaranteed income, and we as a company can manage the fluctuation in Bitcoins to offset any losses or gains. We have hedged our risks. Exchanging 10% of Bob’s contribution for dollars, we minimized the risk.
The total of Bitcoin deposits and US Dollar deposits will never be equal at any given time. The Bitcoin exchange rate is driven by the mining of coins, which is not as easy to understand. Additionally, this article does not address how profits are spent on developing new technology and computing power to mine more Bitcoins.
Hedging is a method of risk management that the company uses to protect deposits made by CRYPTORY® clients.
Hedging is a method of risk management that the company uses to protect deposits made by CRYPTORY® clients.
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