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How to Short Bitcoin

how to short bitcoin

One method of investing that allows you to take advantage of a certain assets drop in price is known as short selling. While it is not a complicated process, understanding where and how to short Bitcoin requires a rather lengthy explanation. Investing and learning how to make money trading Bitcoins can have you realize a profit in both the short and long-term. Whether you are looking to make some fast cash, or just to divest your portfolio of cryptocurrency, looking for the answer to “how do I short Bitcoin” can be found by following the tips below.

What is Shorting Bitcoin?

The point of investing is to make a profit on the assets you choose. It is a simple formula — an investor makes a purchase at a certain price, and then sells when the price has gone up. The difference between what they paid and what they sold for is their profit, or gain.

When you are shorting an asset, you are banking on the belief that asset will fall in value, rather than rise. Once the price has fallen to the appropriate level, the investor will buy back the asset at the significantly lower value. By shorting, you can retain control of your assets and make a profit at the same time. So basically, you are counting on the fact that Bitcoin will drop in value. The more the price drops, the higher the profit made by the investor.

It can be put simply like this — you borrow Bitcoins on your trading platform and put in sell order at the current price. Eventually you will need to pay back the Bitcoins you borrowed by repurchasing them. The company or individual who sold you the assets can recall them at any time, and they are not required to give the investor much notice. If luck is with you, the price of the Bitcoins has dropped, and you will make a tidy profit. If the price has risen, it will cost you more to buy the assets back and you will lose money.

Is it Risky to Short Bitcoin?

The simple answer to this question is yes, it is risky to short Bitcoin, especially since it is so volatile. Traders have seen numerous large rises and falls on the cryptocurrency market, so you must be willing to take a risk in order to make some money shorting Bitcoin. Since an asset cannot have a value of less than $0.00, you can only lose the amount you have put in when you are buying long. However, when you attempt to short an asset, if the value continues to rise instead of fall, you can lose all your money. With the markets fluctuating wildly on any given day, you can also be at risk if your lender calls the Bitcoins back in before they have had time to drop in price.

There are several exchanges and platforms for Bitcoins and other forms of cryptocurrency. Make sure you read and are familiar with all their guidelines, regulations, and rules for shorting. The platform you use is based on personal choice but Kraken is often referred to as the best Bitcoin exchange for day trading.

Contract for Difference Short Sell

If an investor does not want to go through the hassle of borrowing, selling, and buying back assets, they can choose to enter into a contract for the difference. What this means is that if the price of Bitcoin drops below what you paid for them, the difference is paid to you as profit. The investor owns no actual Bitcoin, they merely own the price difference. This may be a good option for investors who are just getting their feet wet with cryptocurrency investing.

Selling Your Bitcoins

While this may seem rather obvious, using the open market to short Bitcoin is very easy. Since an investor does not want to sell either too early or too late, you need to carefully study charts and market history to ascertain what you believe is the peak price. After you have unloaded your assets, it is a waiting game to repurchase them again once the price has dropped. For the best way to maximize profit, hold steady through the initial price drop until it drops even lower. Even if you are only buying and selling small amounts at a time, your profits will begin to add up.

Futures Contract Shorting

A futures contract is a legally binding agreement stating that you are going to trade your asset for a certain amount on a specific date in the future. When you are selling a futures contract, you are predicting that the price of the asset is going to drop. When you are buying a futures contract, your belief is that the price of the asset is going to increase. Not only bitcoin, but also currencies, commodities, and stocks are traded this way.

Margin Trading With Leverage Shorting

As highlighted earlier, for example, you borrow Bitcoins on a trading platform of choice and put in an order to sell at the current price. As time passes you will need to pay back the Bitcoins you borrowed by repurchasing them. The person or entity that sold you the assets can recall them at any time, and they are not required without giving much notice. If luck is with you, the price of the Bitcoins has dropped, and you will make a decent profit. If the price has risen, you will have to pay more to buy the assets back, which will be a loss.

Binary Option Markets Shorting

Options contracts, known as either put or call, can be for buying or selling assets at a particular price on a particular date in the future. A put option contract entitles an investor to sell the asset, while a call option contract allows the investor to buy it. If you were looking to short Bitcoin with a put binary option, you are stating that regardless of how far the price drops in the future, you will sell at the price it is at today. For example, if the price today is $100 and you are selling in 45 days, even though the price has gone down to $50, your contract states that you will be selling at $100.

Tracker Investment Fund Shorting

Those accredited investors trading and investing in Bitcoin in the United States have the option of shorting the GBTC, a Bitcoin movement tracker that is traded publicly and exactly mimics the movement of the Bitcoin it is tracking. The trust allows traders to invest without actually trading anything. Because of this, the trust is never completely accurate.

Sweden also has its own version of the tracker fund. European traders and investors do not have this option but instead may short by using exchange-traded notes.

Blockchain-Related Stock Shorting

With the current craze over cryptocurrency, Bitcoin is not the only thing that can be shorted. There are more than 5,000 different known cryptocurrencies, even though most of them are never used and most investors have never heard of them. 90% of all the cryptocurrencies traded on the market are from the top 10, with Bitcoin coming in at the head of the pack. When any stocks related to the blockchain are shorted, Bitcoin is as well. There are tons of these stocks listed on the markets, but if you are looking for a few popular ones, consider these listed below:

  • CME Group (NASDAQ: CME)
  • DocuSign (NASDAQ: DOCU) 
  • Mastercard (NYSE:MA) 
  • NVIDIA (NASDAQ: NVDA)
  • Amazon (NASDAQ: AMZN)
  • IBM (NYSE: IBM)
  • Square (NYSE: SQ) 
  • PayPal (NASDAQ: PYPL)

Platforms and Exchanges for Bitcoin

Exchanges and platforms are based in numerous different countries. The biggest advantage of using one in your own country is that you do not have to worry about currency exchange and can easily perform your transactions without converting your dollars. Below we have listed several of the most popular places to short Bitcoin:

  • Coinbase Pro (see review)
  • Binance
  • Coinmama
  • Robinhood
  • Coinberry
  • Bitbuy
  • The Pit
  • BitForex
  • NASDAQ

Is Bitcoin a Good Investment?

With the world becoming heavily reliant on the internet, it just makes sense that purchasing Bitcoin as an investment has become so popular. It is available globally and can be purchased by anyone. Many investors also think of Bitcoin as being exciting, a foray into a new investment class. Yet others see Bitcoin as a pretend asset, something they cannot tangibly hold or see.

What is the best cryptocurrency to invest in now? Bitcoin can certainly be a good investment; however, all smart investors know not to put all their eggs in one basket, and this advice should be followed closely when relating to Bitcoin.

Charting and analysis

Crypto charting is the process of using charts to track market changes. Crypto charting has advanced into a much more advanced field than it used to be, when simply drawing lines on a graph was the only available option.

Now, crypto traders have access to multiple types of indicators that display different information. Crypto traders can now create all sorts of charts to assist them in their investment decisions.

Crypto charting is responsible for the rise of professional crypto traders, instead of just being a ‘hobby’. Crypto charting has become so advanced that many large trading firms are using algorithms to automatically trade cryptocurrency assets.

With this in mind, we’ll show you some of the ways we use TradingView. TradingView is an excellent platform for technical analysis; learn more about it and why it’s our favorite charting program over at TradingView. You may create numerous charts and utilize indicators to examine data, as well as real-time changes, on TradingView.

See our review on TradingView to learn more. 

Takeaway

Learning how to short Bitcoin may seem a bit challenging at first, but thanks to excellent articles and some user-friendly platforms out there, much information is available to guide you on the way.

There are also many wonderful sites devoted to the inner workings of cryptocurrency and before you lay down any cash, take the time to educate yourself on exactly what you will be getting.

Simply due to its unpredictability, avoid investing more than you can comfortably afford to lose, especially in the beginning. Once you have become a master at exactly how to short Bitcoin, you may decide that playing the odds is the best investment strategy for you after all.

Continue your cryptocurrency trading education and learn how to become in both technical and fundamental analysis in this crypto trading education

Patrick Moore
Patrick has been a part of the cryptocurrency community since 2014 and created CryptoWhat in 2015 to help new users learn more about cryptocurrencies. Despite not being a financial expert, his passion for cutting-edge technology drives him to share knowledge and information with as many people as possible about the potential of cryptocurrencies and how they will change the financial sector.