Optimal Portfolio Hedging in a Cryptocurrency Market

The rapidly expanding cryptocurrency market has presented investors with unique opportunities for portfolio diversification and capital appreciation. This thesis investigates the dynamics of optimal portfolio hedging in the cryptocurrency market, addressing the research question: “How can investors optimally hedge their cryptocurrency portfolios with predictable cash flow to minimize risk exposure and maximize returns while taking into account market the unique characteristics of the digital asset ecosystem?” To answer this question I analyze various derivatives-based hedging instruments, specifically option-based and perps-based, and assess their effectiveness in mitigating risks associated with cryptocurrency investments. The findings of this thesis will provide investors with a comprehensive framework for managing risks in the cryptocurrency market, contributing to the digital asset management literature.