How to Short Bitcoin and Other Cryptocurrencies

Short selling can help you to capitalize on bearish trends, pullbacks and trade mean-reversion set-ups. Since the crypto market is still in its early stages, there is still a lot of regulatory uncertainty surrounding this industry. In the event that a major country bans alvexo review or enacts some anti-Bitcoin stance, the market will adjust accordingly. We may receive compensation when you click on links to products we review. If you’re getting into the crypto world and are looking to make some good money, day trading could be a great avenue.

On the plus side, shorting allows you to profit from a decline in the price of an asset. So, if you think the price of Bitcoin is going to drop, you can short it and make money when it does. Binary options trading is a relatively new way to short Bitcoin, and it can be a very risky proposition.

Shorting, as an investment principle, is no different for bitcoin. However, with crypto being the focal point of this discussion and BTC being the most dominant crypto, this discussion requires additional detailing. Practise trading risk-free with virtual funds on our Next Generation platform. For example, several issues related to Bitcoin forks are still unresolved. While established platforms like CME are safer and guarantee execution for Bitcoin derivatives, new platforms might start off “clunky” and be more susceptible to hacks.

The profit potential, in this case, is limited as the price cannot go lower than zero, but the flip side is that the price could continue rising exponentially, exacerbating your losses. Futures contracts are a form of derivatives that allow traders to speculate on an underlying asset’s price movement how recommended is umarkets forex broker without holding the asset itself. They are often traded using leverage, meaning profits and losses are amplified. Jeremy can sell this Bitcoin and keep the $10,000, or he can use his earnings to make other investments. Had he not shorted the market, he would only show losses in his portfolio.

  • Both methods allow investors to buy or sell an asset at a specific price by a specific date.
  • However, a key decision traders make when they are starting out is if they are going to focus on technical or fundamental analysis strategies.
  • Use one of our recommneded CFD Brokers that offer CFD trading services.
  • This process completes the standard buy low, sell high circle, but only in reverse.

After the value of Bitcoin completes its dip, the investor repurchases Bitcoin with the original sales funds. Short selling is an investment method that allows you to benefit from drops in the price of a particular asset. When an investor speculates on the decline in a tradable asset such as Bitcoin, stocks, or other securities prices, they can gain profits using shorts. In a short sale scenario, you bet against the price of the asset in question. Some of the most popular platforms for shorting crypto in the US include Bitfinex, Kraken, and FTX. These platforms allow you to borrow crypto from other users and then sell it on the open market.

How to Short Bitcoin and Other Cryptocurrencies

Traders who follow a strategy based upon technical analysis review historical BTC price charts by observing past trends and using technical indicators. The moving average indicators help to reduce bitcoin’s volatile price history into a simple trend line. Moving averages encapsulate several indicators, but include SMA (simple moving average),  MACD (moving average convergence divergence) and Bollinger Bands.

When shorting crypto, traders will typically open a position by selling an asset they do not own and then buying it back at a lower price in order to profit from the difference. Given the volatile nature of the cryptocurrency market, shorting crypto can be a high-risk strategy but it can also lead to impressive profits if done correctly. While the futures market comes with obligated contracts, you can short-sell momentum trading risks BTC by opting for non-obligated, Binary options trading. For the unversed, binary options are derivatives where traders bet on future prices of the underlying asset — BTC in this case. Many people start short selling Bitcoin by using a margin trading platform dedicated to cryptocurrencies. With this type of trading, you borrow money from a broker, make the trade, hoping that your bet pays off.

  • In this example, we are moving funds from the Fiat and Spot wallet to the BTC/USDT Isolated margin wallet.
  • One thing to remember – the maximum profit potential of a short is limited to a Bitcoin price of 0, whereas buyers have no limit on their profit.
  • They are, however, a flexible option for short selling bitcoin as you only initially risk the options contract premium.
  • Most traders use market orders and that’s why they show this fee structure.
  • Practise trading risk-free with virtual funds on our Next Generation platform.

In addition to providing liquidity, they also prevent asset prices from inflating too much. Of course, some unethical short sellers use strategies like “short and distort,” but it’s not that different from people who use “pump-and-dump” schemes in traditional trading. At the end of the day, it’s not the activity itself that’s unethical — it’s the (few and far between) people who indulge in unethical practices. Just like other trading practices, short selling requires you to be careful and informed. Thoroughly research all assets you’re planning to short and only ever spend money you can afford to lose. To avoid these concerns, customers can turn to some options available from the institutional world.

Simplifying the Bitcoin Whitepaper: A Comprehensive Guide

Let’s say that the price of Bitcoin jumped up to $13,000 instead of dropping. Additionally, you would owe $65,000 worth of Bitcoin instead of the original $60,000 worth of Bitcoin you borrowed. There are also future scenarios that could occur that would affect Bitcoin’s price negatively. For example, if the cryptographic hashing algorithm of Bitcoin is broken, the coin will become unsecured and its market value will plummet. Along the same line of thought, major coding exploitations could also cause investors to lose faith in this cryptocurrency. Your margin requirements act as a form of collateral or security.

What Are the Risks of Shorting Bitcoin?

Purchase of an option grants the ability, but not the obligation, to trade at a specific price by a certain expiry date. If you short sell 10 Bitcoins, for example, you will eventually have to “cover” those 10 Bitcoins, whether prices rise or drop. To short Bitcoin, you need to contact a trading agency or platform and place a short sell order. The agency will then sell the Bitcoins from their own supply, based on the assumption that in the future you will repay them with an equal number of Bitcoins. Short selling (often referred to just as ‘shorting’) is an investment method to make money from an asset’s price drop.


How it works is that an exchange will basically let you borrow some commodity with an agreement to return it at a later time. While you are in possession of the asset, you are free to do with it as you please, so long as it is returned by the agreed-upon time. Shorting Bitcoin is risky, given that the asset is highly volatile compared to most other tradable assets. Additionally, when shorting, it means that you are betting the price will fall, and you will make a profit.

Short-selling Bitcoin assets

If you have enough of your own funds, you can also short sell Bitcoin directly. All you need to do is sell BTC when the price is high and then buy back when it’s low. This method of short selling Bitcoin is relatively beginner-friendly, as you don’t need to learn how to use trading platforms to utilize it. It is also a lot less risky since you can’t lose more than you own. Spot margin trading is a service offered by an increasing number of cryptocurrency trading platforms.

DEALS for Free BTC, High APY, and Trading Fee Discounts

Many financial watchers say Bitcoin is the best shorting opportunity ever. Part of the reasoning is that after reaching $11,000 in value, the cryptocurrency dropped almost 20% in value in under six hours, to just over $9,000. To a non-trader, short selling may seem unethical and even downright evil — after all, you’re basically betting on a business or an underlying asset doing badly. Since so many people are passionate about Bitcoin as a technology, they may see betting against the cryptocurrency’s success as something negative. On the positive side, and much like with futures, this type of shorting also limits exposure to the basically infinite risk that margin trading poses.


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