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My friend Robert has been obsessed with Bitcoin recently.
One day, he told me that Bitcoin’s price would increase from \$1000 to \$3000.
I didn’t believe it.
So we made a bet: If Bitcoin hit \$3000 in 6 months, He would win \$1000; otherwise I would win \$1000.

Can you see the problem with this bet?
It’s not a fair bet.
There was a strategy for me to win in any situation.

Hedge!

I spend \$1000 to buy Bitcoin.
After 6 months:

  • If Bitcoin hit \$3000, I would lose the bet and have to pay Robert \$1000.
    But my Bitcoin would now be worth \$3000+, giving me at least \$1000 in total profit.
  • If Bitcoin didn’t hit \$3000, I would win \$1000 from Robert.
    My total profit would be the value of my Bitcoin.

Either way, I won!

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