Connect with us

How to Short Bitcoin: 5 Popular Ways

how to short bitcoin

Are you are a bitcoin skeptic and think that the price of bitcoin will collapse? Good news! There are a number of ways to short sell the digital currency. In this guide, you will discover five ways of how to short bitcoin in 2019.

Shorting on Crypto Exchanges

Perhaps the simplest way to short bitcoin is on digital asset exchanges. Exchanges that allow crypto traders to short bitcoin include Kraken, Bitfinex, BitMEX, and GDAX.

Crypto exchanges provide traders with the ability to short sell bitcoin by borrowing bitcoin to short sell and then buy back at a later date to cover the short position. If the price of bitcoin has dropped, the trade is in profit.

Many exchanges also allow leveraged shorting. For example, if you have $500 on the exchange and you leverage on a 1:3 ratio, you can short sell three times what you have ($1,500).

Using Cryptocurrency CFDs

If you prefer trading regulated financial products, digital currency CFDs (contracts for difference) may be an attractive option.

To short sell bitcoin CFDs, you need an account with an online CFD crypto brokerage. The mechanics of shorting bitcoin on a CFD broker is the same as on a crypto exchange. The main difference is that the trading profits are paid out in fiat currency as opposed to BTC.

You can also take advantage of leverage using CFDs to potentially amplify your profits (or losses).

Selling Bitcoin Futures

Bitcoin futures enable investors to bet on the price movement of BTC without having to own the asset. A futures contract obligates an investor to buy or sell bitcoin at a set price and date in the future.

You can sell bitcoin futures on crypto and traditional exchanges that allow this type of investment option, including CME Group, Bakkt, and BBOD.

If the price falls below where you sold your futures, you will generate a profit minus the trading fees.

Buying BTC Put Options

Bitcoin options are more complex than futures or CFDs but offer more flexibility and higher leverage. Put options are derivatives based on underlying assets such as stocks, commodities or currencies that offer the investor the right, but not the obligation, to sell the asset at a specific price and by a specified date.

There are two types of options: put options that allow investors to sell an asset at a fixed price within a specified duration and call options that offer the opportunity to buy an asset at a fixed price by a given timeline. These options give investors an opportunity to make money in a bearish or bullish market.

There are a number of bitcoin options trading platforms that you can use to buy bitcoin put options.

If you think the BTC price will drop in the next two months, you could buy a put option at a strike price of $5,000. Should the price fall below this level by the end of your contract, you will make a profit. If the price does not drop below the strike price, you will lose the option premium.

Options’ complexity makes them more appropriate for advanced traders than beginners.

Prediction Markets

Blockchain-based peer-to-peer prediction markets offer another option to short crypto. Prediction markets use smart contracts to allow investors to bet on bitcoin’s price development. An example of such a prediction market is Ethereum-based Augur.

To get started on a prediction market like Augur, you place a bet in ether (ETH) predicting that the bitcoin price will fall until a set time and date. If your prediction comes true, you will receive a payout in ETH.

With this method, you need to understand how the prediction platform and how smart contracts work. Prediction markets are, therefore, more suited for experienced crypto traders.

Shorting Crypto is Not For Newbies!

short bitcoinThe crypto market is highly volatile, which makes short selling bitcoin a risky venture. Also, the price of the world’s leading digital currency has historically gone one way and that is up.

Therefore, you should have a good understanding of the market and the financial products you will use to set up your short position.

Finally, you should only trade with money that you can afford to lose to limit the effects of your potential losses.