How to Properly Short Bitcoin?

How to Properly Short Bitcoin

Bitcoin’s value direction as a crypto-virtual digital currency with no issuer is elusive, so shorting the currency may be a good option for investors who think Bitcoin may collapse at some point in the future. The methods and avenues of shorting Bitcoin have multiplied as cryptocurrencies have gained more and more attention in mainstream financial markets. Do you know how to short Bitcoin?

First of all, let’s understand together, what does it mean to go short? There are two main ways to short the coin circle, one is to short the coin, and the other is to short the contract. For those looking to go short bitcoin, there are many investment options, that is, to make a profit by betting on the price of bitcoin. Derivatives such as options or futures can provide you with short-term exposure, as can the margin facilities offered by some crypto exchanges. Short selling is risky in any asset, but it is especially dangerous in an unregulated crypto market like Bitcoin. Here are a few common ways to short Bitcoin.

Futures Markets

Like other assets, Bitcoin has a futures market. In futures trading, the buyer agrees to buy a security with a contract that specifies when and at what price the security will be sold. If you buy a futures contract, you bet that the price of the security will rise; This ensures that you can get good deals later on. If you sell a futures contract, it indicates a bearish mindset and predicts that the price of Bitcoin will fall. In this case, you can go short bitcoin by buying a contract that bets on the lower price of the cryptocurrency.

Margin Trading

One of the easiest ways to go short bitcoin is through a cryptocurrency margin trading platform. Many exchanges and brokerage companies allow this type of trading, and margin trading allows investors to “borrow” money from brokers to trade. It is important to remember that margin involves leverage or borrowed funds, which can increase profits or exacerbate losses. Many Bitcoin exchanges allow margin trading at this stage, with Kraken and Binance being some of the popular options.

Bitcoin futures trading took off at the end of 2017 when cryptocurrency prices rose. It is now available on a variety of platforms. You can short Bitcoin futures on the Chicago Mercantile Exchange and cryptocurrency exchanges, the world’s largest derivatives trading platforms. Bitcoin futures can be bought or traded on popular exchanges such as Kraken or BitMEX, as well as at popular brokerage firms such as eToro and TD Ameritrade.

Sell bitcoin assets short

While this strategy may not appeal to all investors, those with an appetite can reap the benefits if their bets on Bitcoin pricing succeed. Sell tokens at a price you are satisfied with, wait until the price drops, and then buy the tokens again. Of course, if the price doesn’t adjust as you expected, you could lose money or lose bitcoin assets in the process.

Predict the market

Predicting the market is another way to consider short bitcoin. The prediction market in the crypto space is similar to the mainstream market. Investors can create an event and place a bet based on the result. So you can predict that Bitcoin will drop by a certain margin or percentage, and if someone bets you on the bet, if it passes, you will make a profit. Popular crypto prediction markets are Augur, Gnosis’s Omen, and Polymarket.

Binary Options Trading

Call options and put options also enable traders to go short bitcoin. If you wish to go short on a currency, you can execute a put order, possibly using a custodial service. This means that your goal is to be able to sell the currency at today’s price, even if the price falls later. Binary options can be obtained through many offshore exchanges, but the cost and risk are high. One advantage of using binary options trading over futures is that you can limit your losses by choosing not to sell put options. Therefore, your losses are limited to the price you paid for the put option. Popular venues for trading options are Deribit and OKEx.

Use Bitcoin CFDs

CFDs are a financial strategy that pays out funds based on the difference in price between the open and closing prices settled. Bitcoin CFDs are similar to Bitcoin futures in that they are essentially a bet on the price of a cryptocurrency. When you buy a CFD that predicts that the price of Bitcoin will fall, you are shorting Bitcoin. Unlike Bitcoin futures, which have a predetermined settlement date, CFDs have a more flexible settlement period. Bitcoin CFDs also do not require physical delivery of cryptocurrencies. So, you don’t have to spend on guardianship fees. In some Bitcoin CFD markets, traders can enter into contracts based on Bitcoin’s performance or its performance relative to fiat currencies or other cryptocurrencies.

Trade products using reverse exchanges

An inverse exchange-traded product is a bet that the price of the underlying asset will fall. They are similar to futures contracts and are used in combination with other derivatives to generate returns. The products you can use exchange-traded products to bet on Bitcoin price drops are the BetaPro Bitcoin Reverse ETF and the 21Shares Short Bitcoin ETP. Neither product is open to U.S. residents.

As with any cryptocurrency-related strategy, you need to pay escrow or Bitcoin wallet fees to store cryptocurrency until a transaction takes place. You must also bear the risk of Bitcoin price fluctuations. So shorting Bitcoin comes with huge risks. Here are some things you should consider carefully when shorting Bitcoin:

Most of the ways to short Bitcoin rely on derivatives. These derivatives are priced based on Bitcoin; Fluctuations in the price of cryptocurrencies have a domino effect on investors’ gains and losses. For example, Bitcoin futures mimic spot price changes, which means they cannot be used as an effective hedge against actual Bitcoin investments. Similarly, Bitcoin options trading also increases losses due to the price volatility of the underlying cryptocurrency.

After that, I would say that price volatility is just one of several risks that you have to assess when going short on cryptocurrencies. Compared to other more mature assets, Bitcoin is still in its infancy, and it has only been born for 13 years. So there is not enough data or information for investors to make informed decisions about how it operates or is viable as an asset. Several issues surrounding the Bitcoin fork, for example, have yet to be addressed. So I am here to remind everyone to be cautious in the process of investing in and shorting Bitcoin.


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