The sharp swings in crypto prices through early February 2026 have once again underlined a basic truth of digital asset markets. It is that volatility is not an exception, but the norm in crypto. Bitcoin, which was trading close to $77,000 at the start of the month, slid sharply over the next few days and tested levels below $65,000. By mid-February, prices had recovered modestly but remained well below early-month highs. This pattern has unsettled many retail investors.
Such sudden moves are rarely driven solely by crypto-specific factors. Global macro conditions continue to dominate price action. With US interest rates expected to remain elevated for longer and liquidity conditions tight, risk assets (including crypto) tend to see abrupt corrections when leverage unwinds. In these phases, spot investors often face a difficult choice. They are confused whether to hold through volatility or exit positions at unfavourable prices.
This is where crypto futures assume importance. Futures are not a mere speculative instrument, but is a practical tool for risk management.
What Are Crypto Futures?
A crypto futures contract allows participants to take a position on the future price of an asset such as Bitcoin without owning it directly. Unlike spot trading, where gains or losses depend entirely on price direction, futures enable investors to manage exposure more flexibly. And, the attractive part is that customers can do this even during falling markets.
In simple terms, futures allow investors to go ‘long’ if they expect prices to rise, or go ‘short’ if they expect prices to fall. This ability to profit [read protect] during downturns is what makes futures particularly relevant during volatile phases like the one seen in February.
Long & Short: Explained
A long futures position benefits when prices rise. If Bitcoin moves up, the value of the long position increases.
A short futures position, by contrast, gains when prices fall. This may sound counterintuitive to many retail participants. However, it is often used defensively rather than aggressively.
For Indian investors, one of the most underused strategies is a ‘seat-belt short.’ This is a defensive futures position taken to protect an existing spot portfolio during sudden price declines.
‘Seat-Belt Short’ In Practice
Consider an investor holding Bitcoin for the long term. When prices fall sharply (as in February), selling spot holdings may lock in losses or disrupt a long-term allocation strategy. Instead, the investor can take a short position in Bitcoin futures equivalent to part or all of the spot exposure.
If prices continue to fall, losses in the spot portfolio are partially offset by gains in the short futures position. This helps stabilise the overall portfolio and reduces the pressure to exit holdings in panic. When markets stabilise, the futures position can be unwound while retaining the spot asset.
The objective here is not to profit from the fall, but to control downside risk during periods of extreme volatility.
Perpetual Futures & Funding Costs
Most crypto exchanges offer perpetual futures, which do not have a fixed expiry date. These contracts use a funding mechanism to keep futures prices aligned with spot prices. Depending on market conditions, traders may either pay or receive a funding fee.
For hedgers, understanding funding costs is essential. Holding a hedge for extended periods during stressed markets can involve costs. So, positions should be reviewed regularly rather than left unattended.
Risk Management Matters More Than Leverage
Futures can reduce portfolio risk, but misuse can amplify losses. Excessive leverage, poorly defined liquidation levels, and overconfidence are common causes of losses among retail traders.
Prudent use of futures involves low or moderate leverage; clearly defined risk limits; and partial hedging rather than all-or-nothing bets.
February’s price action, where Bitcoin moved sharply across multiple support levels within days, illustrates why disciplined risk management is critical.
Why Futures Is Gaining Relevance In India
As India’s crypto market matures, investors are moving beyond simple buy-and-hold strategies. Futures offer a way to engage with markets more professionally. It allows investors to stay invested while managing volatility rather than reacting emotionally to every price swing.
The key takeaway is simple: volatility cannot be eliminated, but it can be managed well. Used responsibly, crypto futures provide Indian market participants with a tool to navigate turbulent markets with greater confidence and control. This is especially true during phases when global macro conditions continue to drive sharp price moves.
(The author is the CEO of Giottus)
Disclaimer: The opinions, beliefs, and views expressed by the various authors and forum participants on this website are personal and do not reflect the opinions, beliefs, and views of ABP Network Pvt. Ltd.
