How To Short Bitcoin 7 ways – Profit From BTC’s falls
Do you believe that Bitcoin’s price will fall? Then this article on how to short Bitcoin is exactly what you are looking for.
Many crypto traders are starting to realise that there are several ways they can earn money from trading Bitcoin. And one of those is by shorting Bitcoin. So that’s why we are covering how to short Bitcoin in this guide.
Holding Bitcoin is a great way to increase your USD, GBP, EUR holdings in the long run. But did you know that you can trade Bitcoin to make money also in the short-term?
One of the most popular ways of earning money is by shorting Bitcoin. So in this guide, we will explore the seven best options you have on how to short Bitcoin.
Many investors are wont to purchase a product at a particular price, then wait for this to appreciate before selling it. The difference between their purchasing and selling price becomes their gain.
Asides this method of profit-making, there is another way to make a profit. In this case, an investor buys an asset at a particular price with the belief that this price will fall later on.
When this price does fall, he proceeds to buy back the asset at this cheaper price. The asset then returns to his possession, and his profit is the difference between the initial sale price and the eventual purchase price. This is what is referred to as shorting.
Putting things in context, shorting Bitcoin means that the Bitcoin trader believes that the price of this Bitcoin will fall and is ready to make a trade to make a profit from this anticipated fall. The lower the price goes the more profit the trader will make.
How To Short Bitcoin
With an understanding of the above, you are probably already asking yourself “how to short Bitcoin?”. To answer that, the following are popular ways by which you can short Bitcoin right now:
1 ) Margin trading
This involves borrowing a particular number of Bitcoins from a lender and selling this on the open market at the market price. If the price of Bitcoins then drops, the borrower then buys back the Bitcoins, returns the exact amount borrowed to the lender and keeps the difference between the sale and purchase prices.
For example, if Bitcoin costs $50 on the open market and in thinking that this price will drop, you borrow 2 Bitcoins and sell these. When the price falls to $30 for each, you buy back 2 Bitcoins, return these to the lender and keep the $40 price difference.
Note though that in this case, the lender can recall their Bitcoins at any time and is only required to give you short notice beforehand. So, ensure you read the terms and regulations that surround your short selling and try not to wait too long in anticipation for a further drop in price, before returning the Bitcoins to the lender.
2 ) Sell a futures contract
A futures contract is a legal agreement to trade an asset for a particular amount on a predetermined date. If you buy a futures contract, you predict that the price of the asset will rise. If you sell a futures contract, you predict that there will be a price decline.
3 ) Sell your Bitcoins
Another obvious method of how to short Bitcoin is by selling in on the open crypto market.
It is one of the easiest ways to profit from Bitcoins’ volatility is simply to sell these. Only make sure to make this sale when you believe the market has reached its peak. To be sure of this, you can either consult with experts or carefully study the market and market charts.
After selling these, wait for the price of Bitcoins to fall. Once this fall happens, you can buy Bitcoins again. Eventually, you save up on the difference between sales and purchase costs.
To maximize your profit, consider waiting a while for a further drop in the price instead of selling after the initial price dip. For example, if you sold 10 Bitcoins at $100 each. And the price of each eventually falls to $75 each. Your initial sales cost will be $1000 and your eventual purchase cost will be $750. In this case, you will have a profit of $250.
If, however, the price further falls to $50 each, you would have bought the Bitcoins back at $500 and made an additional profit of $250, making it $500 in total. Again, a thorough market appraisal is key.
You can sell Bitcoin at pretty much every crypto exchange – have a look at this article for our top 8 crypto exchanges
4 ) Short the Bitcoins tracker funds instead
Bitcoin investors and traders in Europe have the option of shorting Bitcoin by using the Bitcoin exchange-traded notes instead. For investors and traders in America, there is the option of shorting the Bitcoin investment trust; a publicly-traded investment that tracks the movement of Bitcoin market price and mimics this movement.
This trust lets people invest in, as well as short Bitcoins without having to trade the actual cryptocurrency. In this case, the trust will not always be 100% accurate in its attempt to mimic Bitcoin’s market price.
5 ) Shorting through binary option markets
An option contract, which could be call or put, allows you to purchase the right to buy or sell an underlying asset at a specific price at a specific future date. While call option contracts give traders the right to purchase the asset at a later date, put option contracts give traders the right to sell the asset.
To short Bitcoin, you buy a put option contract which depicts that you will cell Bitcoins at today’s price irrespective of future price drops.
For example, Let’s say you buy a put option contract to sell Bitcoins at $200 in 2 months. If before this time, the price drops to $120 per piece, you still sell your cryptocurrencies at $200, according to the contract.
6 ) Shorting through prediction markets
Only recently introduced into the world of cryptocurrency, prediction markets let users predict and bet the outcome of events.
To short Bitcoins, you could predict that the price of Bitcoin would decline by a certain margin. If anyone takes you on the bet, you stand to profit if your prediction comes to pass.
7 ) Trade Contract for Difference (CFD)
A CFD is a contract that allows you to speculate on the change in prices of an asset. Here, the buying and selling party agrees to settle any change in Bitcoin price in fiat currency on the day the contract expires.
For example, if a trader sells the CFD of one Bitcoin for $20, for a week later. If the price of Bitcoin is $14 on the day the contract expires, the buyer would pay the seller $6. However, if the price increased to $30, the seller pays the buyer $10.
Where to short Bitcoin?
Here are the most popular exchanges and platforms to use for shorting Bitcoin. Which includes margin trading, selling Bitcoin, CFDs and Future contracts.
To Wrap It Up (how to short Bitcoin)
While this article has explained how to short Bitcoin, it is important to know that, shorting Bitcoins is a risky business. A thorough understanding of the cryptocurrency market and factors that affect price, however, can help reduce this associated risk.
Here you can learn more about trading cryptocurrencies and manage your risks.
Other popular Bitcoin guides
- How To Use Bitcoin ATM Guide
- The easiest way to buy Bitcoin
- The best Bitcoin and cryptocurrency wallets
- Best ways to convert Bitcoin for cash (USD, etc)
Per Englund – Founder of Go CryptoWise a cryptocurrency and tech fan that want to see better and smarter products and services that makes our lives better and easier