8+ Ways to Short Bitcoins | How do you short sale a Bitcoin?

8+ Ways to Short Bitcoins | How to Short Sell Bitcoins

Trading on Margin

Shorting Bitcoin may be a suitable alternative for those who feel the currency will fall at some time in the future. With the cryptocurrency's rising prominence in mainstream banking.

A cryptocurrency margin trading platform is one of the simplest methods to short Bitcoin. This sort of trading is permitted by many exchanges and brokerages, with margin trades enabling investors to "borrow" money from a broker in order to execute a transaction. It is critical to understand that margin entails leverage or borrowed money, which may either raise earnings or aggravate losses. At this moment, several Bitcoin exchanges support margin trading, with Kraken and Binance being two prominent possibilities.

Important Takeaways

There are several investment possibilities accessible for people wishing to short Bitcoin—that is, to make a profit by betting against its price.

Short exposure can be obtained through derivatives such as options or futures, as well as margin facilities available on certain cryptocurrency exchanges.

Bitcoin's price is volatile and prone to unexpected surges or drops. Short selling is perilous in any asset, but it is more dangerous in uncontrolled crypto markets.

Futures Exchange

Bitcoin has a futures market, much like other assets. A buyer agrees to acquire a security with a contract that defines when and at what price the security will be sold in a futures transaction. When you purchase a futures contract, you are wagering that the price of the asset will climb, ensuring that you will be able to obtain a good deal on it later. If you sell a futures contract, it indicates a negative attitude and a forecast that the price of Bitcoin would fall. In this sense, you may short Bitcoin by buying contracts that bet on the cryptocurrency's price falling.

Bitcoin futures trading exploded with the end-of-year rally in cryptocurrency prices. It is currently accessible on a multitude of platforms. Bitcoin futures may be traded on the Chicago Mercantile Exchange (CME).

It is the first nation in the world to do so. The cryptocurrency may be used in any transaction that the company accepts. El Salvador's major currency is the US dollar.

Trading Binary Options

Traders may also short Bitcoin using call and put options. If you want to short the currency, you would place a put order, most likely via an escrow provider. This indicates that you want to be able to sell the currency at today's price even if the price declines later. Binary options are offered by a variety of offshore exchanges, but the prices (and hazards) are significant. One benefit of binary options trading over futures is that you may minimize your losses by not selling your put options. As a result, your losses are restricted to the cost of the put options. Deribit and OKEx are two popular options trading platforms.

Markets for Prediction

Another option for shorting Bitcoin is to participate in prediction markets. Prediction markets in cryptocurrency are comparable to those in traditional markets. Investors may set up an event and place a bet depending on the result. You may, for example, forecast that Bitcoin would fall by a specific margin or percentage, and if someone takes you up on the bet, you'll benefit if it happens. Augur, Gnosis' Omen, and Polymarket are three popular cryptocurrency prediction markets.

Bitcoin Assets Being Shorted

Though this technique may not appeal to many investors, those who are willing to take the risk may profit if their wager against Bitcoin price is successful. Sell tokens at a price you're comfortable with, wait for the price to fall, and then repurchase tokens. Of course, if the price does not shift as expected, you might either lose money or Bitcoin assets.

Shorting Bitcoin entails huge expenses and dangers. For example, you'll have to pay custody or Bitcoin wallet fees to keep the bitcoin safe until the transfer takes place. You must also accept the risk of Bitcoin's price volatility. If the price rises instead of falling, as you had intended, you might face huge losses. Certain exchanges also provide leverage for such deals. Again, the disadvantage of utilizing leverage is that it has the potential to compound earnings or losses.

Investing in Bitcoin CFDs

A contract for differences (CFD) is a financial technique that pays out money for settlement depending on price disparities between the open and closing prices. Bitcoin CFDs, like Bitcoin futures, are effectively wagers on the cryptocurrency's price. When you buy a CFD expecting that the price of Bitcoin will fall, you are shorting Bitcoin.

CFDs offer a more flexible settlement period than Bitcoin futures, which have predefined settlement dates. Bitcoin CFDs do not also need the actual delivery of the cryptocurrency. As a result, you will not have to spend money on custody fees. Traders may engage into contracts in specific Bitcoin CFD marketplaces based on Bitcoin's performance or its performance relative to fiat money or another cryptocurrency.

Making Use of Inverse Exchange-Traded Products

Inverse exchange-traded products are wagers on the price of an underlying asset falling. They are similar to futures contracts in that they generate returns by combining them with other derivatives. BetaPro Bitcoin Inverse ETF (BITI.TO) and 21Shares Short Bitcoin ETP are two exchange-traded products that you may use to wager on a Bitcoin price fall. Both items are not available to citizens of the United States.

Shorting Bitcoin, like any other cryptocurrency strategy, has a high level of risk. Here are some points to think about while shorting Bitcoin:

Bitcoin's value fluctuates.

The jokes about Bitcoin's price volatility have worn thin by now.

2 They are, nonetheless, still relevant. The majority of ways to short Bitcoin rely on derivatives. These derivatives are dependent on Bitcoin pricing, which means that variations in the cryptocurrency's price have a domino effect on investor profits and losses. Bitcoin futures, for example, replicate spot price swings, implying that they cannot be utilized as an effective hedge against an investment in real Bitcoin. Similarly, owing to the volatility of the underlying cryptocurrency's price, options trading in Bitcoin may magnify losses.

Bitcoin is a dangerous investment.

Price is just one of numerous dangers you must consider while shorting cryptocurrencies. Bitcoin is still in its infancy when compared to other, more established assets. It has only been in existence for 13 years. As a result, there is insufficient data or information for investors to make an informed choice regarding its operation or viability as an asset. Several concerns with Bitcoin splits, for example, remain unanswered. While established platforms such as CME are safer and ensure Bitcoin derivatives execution, emerging platforms (such as prediction market Augur) began as "clunky" and vulnerable to hacking. 3

Bitcoin's regulatory status is still unknown.

Despite promises of worldwide coverage, Bitcoin's regulatory status across regions remains unknown. Several popular Bitcoin trading sites, such as Deribit, OFX are not accessible to American investors. 45 Because of the lack of regulatory control, exchanges have been able to make services that would not be permitted if effective oversight existed. Until recently, Binance, for example, provided 125 percent leverage for Bitcoin futures trading. 6 Due to the lack of clarity on regulatory status, clients of these exchanges have little legal recourse.

Knowledge of order types is required.

Before you take a short position in Bitcoin, you should familiarize yourself with the various order types. They may assist reduce losses if the price trajectory does not follow the original wager. Using stop-limit orders, for example, when trading derivatives may help you restrict your losses.