Here are the reason when not to use the conversion tool listed by Peakd in the conversion tab:
UNDERSTANDING WHEN NOT TO USE
IF you can get the volume of HBD you want in a secondary market by selling your HIVE and buying HBD for less than $1.05 then that is more efficient than this conversion process
AND if you personally believe the present value of HIVE will be significantly higher right now than it will be assuming the predicted 3.5 day median average.
The second reason is the issue we are talking about.
The trade remains winning in dollar terms but it is losing in hive terms. A hodl is better, unless I'm missing something and peakd is wrong too.
It is possible to hedge this risk as follows.
Take the HBD you get and instead of selling it for HIVE, sell it for another stablecoin or fiat (one you trust to hold value for 3.5 days). Then use the stablecoin or fiat to buy back HIVE over the course of the 3.5 days. You will end up better off than you started with near certainty.
Great strategy. The only way to lose is if hive dumps on the last day, in which case the market price will be much lower than the median average price.
The market price on the last day doesn't matter. The median price is used for the conversion, and we're calculating (hedging) here in terms of HIVE. You will almost certainly end up with more HIVE than you started with, meaning you are better of than if you had simply held the HIVE rather than engaged in the conversion.
If you want to hedge in USD terms, that can be done as well, but the strategy would be different.
You're right, I was thinking in USD terms, not hive.
What would be the strategy to hedge in USD?
Convert the HBD to a stablecoin then short hive?
Same strategy as before plus short HIVE.
Actually if you wanted to hedge your HIVE holdings (without selling them) the strategy is always just to short HIVE 'against the box'. The conversion part doesn't matter except that it grows your HIVE holdings, so you can consider it to be the same.
Yeah, that makes a lot of sense. Hopefully we'll have an effective way to trade hive on derivatives soon with what @klye is doing.
Exchanges have very low limits on hive borrowing.