Interest in cryptocurrencies, in particular Bitcoin, has remained high for a number of years. As of July 2026, more than $7.8 billion is allocated to Bitcoin ETPs in Europe alone.[1] However, Bitcoin trades globally in US dollars, meaning European and UK investors can be exposed to a secondary layer of risk; not only must they contend with the changing price of Bitcoin itself, but also the change in exchange rates of domestic currency compared to the US dollar. Last year showed just how significant a role exchange risk can play.
Currency hedging has a single purpose: to reduce the exchange rate risk for those wanting to purchase bitcoin ETPs. When an asset is priced in one currency, but you hold your wealth in another, your actual return depends on both the performance of the asset and how that currency moves against your own. If there is no hedging, then you are exposed to both risks. A currency-hedged version of an investment uses contracts (forwards or swaps) to try to cancel out the exchange-rate risk. This is not an idea specific to Bitcoin or even cryptocurrencies; it is a long-standing practice across international equites and commodities, most notably gold.
2025 was one of the weakest years in decades for the US dollar. A widely used measure of the dollar’s overall strength, the Dollar Index (DXY), fell by around 9% over 2025, with most of that loss concentrated in the first half of the year.[2] Over the same period, the euro gained approximately 13.5% against the dollar, and the pound gained about 7.5%.[3] [4] Bitcoin, measured in dollars, ended the year down around 6.3%.[5]
But for someone based in euros or pounds holding an unhedged, dollar-priced bitcoin investment, the currency component exaggerated those losses. The same dollar value converts into meaningfully fewer euros or pounds, purely because the home currency strengthened compared to the dollar – making the loss appear considerably worse than bitcoin’s -6.35% would indicate.[6]
Source: HANetf. Assumes parity of exchange rate, no tracking error, and no fees. For illustrative purposes only.
There are several influences suggesting that currency volatility could remain elevated. Sweeping US tariffs introduced in 2025 were interpreted by markets as a threat to trade stability, which weighed on the dollar.[7] Sustained pressure on the Federal Reserve’s independence by the Trump administration has cast doubt on the future of US monetary policy. As geopolitical fragmentation and the weaponisation of financial sanctions have continued, international institutions have begun selling their dollar-denominated debt assets, reducing demand for the dollar and directly contributing to the decline of the dollar – something that has continued into 2026.[8]
Compounding this issue of de-dollarisation are more recent macroeconomic concerns. While inflation did cool in June,[9] the reignition of hostilities in the Gulf between the US and Iran continues to add to geopolitical volatility, supporting proponents of de-dollarisation, and potentially increasing losses for those buying US denominated assets in euros or pounds – if the dollar is undermined.
Source: Statista. Data as of 02.02.2026. For illustrative purposes only.
The concept of currency hedging can apply to a wide variety of funds, ETFs, ETCs, and other investment vehicles. If you hold a dollar-priced asset but your own portfolio is denominated in a different currency, an unhedged position adds the currency’s swings on top of the asset’s underlying price movement. In a year where the dollar moved as much as it did in 2025, an extra layer of risk is significant for non-US investors. Cryptocurrencies, especially, can benefit from currency hedging since they are already considered highly volatile.[10] By using a hedged version of a given crypto product, the exchange rate risk can be reduced.
This material does not constitute a marketing document. It is not an invitation to invest but to be read for educational purposes only. Past performance and forecasts are not reliable indicators of future results.
[1] Source: ETFBook. Data as of 10.07.2026
[2] https://www.mufgresearch.com/fx/fx-focus-g10-fx-2026-outlook-in-a-post-peak-usd-world-19-december-2025/
[3] Ibid
[4] https://tradingeconomics.com/united-kingdom/currency/news/513617
[5] https://www.slickcharts.com/currency/BTC/returns
[6] https://www.slickcharts.com/currency/BTC/returns
[7] https://www.mufgresearch.com/fx/fx-focus-g10-fx-2026-outlook-in-a-post-peak-usd-world-19-december-2025/
[8] https://www.marketpulse.com/markets/us-dollar-index-dxy-breaking-lower/
[9] https://www.bbc.co.uk/news/articles/c98289j7lg7o
[10] https://www.sciencedirect.com/science/article/pii/S1544612322004378
Bitcoin is generally priced in US dollars, so investors whose portfolios are denominated in euros or pounds may be exposed to both Bitcoin price movements and changes in the value of the US dollar. As a result, their return in their home currency may differ from Bitcoin’s reported US dollar return. A weaker dollar can reduce returns when converted into euros or pounds, while a stronger dollar can increase them.
A currency-hedged Bitcoin ETP aims to reduce the effect of exchange-rate movements between the US dollar and the investor’s home currency. It typically uses financial contracts, such as forwards or swaps, to offset some of the currency exposure. The hedge does not remove Bitcoin price risk, but it may help returns more closely reflect the underlying movement of Bitcoin.
An unhedged Bitcoin investment remains exposed to both Bitcoin’s price and movements in the US dollar. A hedged investment aims to reduce the currency component, although the hedge may not be exact and can involve additional costs. Hedging can protect against a weaker dollar, but it may also remove the benefit of a stronger dollar.
Currency hedging may reduce exchange-rate risk, but it does not reduce the underlying volatility or investment risk associated with Bitcoin. Bitcoin prices can still rise or fall significantly, and hedging may introduce costs, tracking differences and counterparty risk. Investors should therefore consider both the cryptocurrency exposure and the currency structure of the investment.
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