Bitcoin (popularly abbreviated as BTC) is a digital currency developed by Satoshi Nakamoto in
2009. Unlike the conventional currency, bitcoin is neither controlled by the government nor
private organizations but by a decentralized authority. Bitcoin is created, distributed, traded, and
stored using a block chain, the decentralized ledger system.
Over the years, the coin has grown to become extremely popular, and it has sparked the creation
of hundreds of alternative cryptocurrencies known as altcoins. The Bank of Singapore has
suggested Bitcoin as a possible replacement for gold as a store of value.
Like every other cryptocurrency, you can send Bitcoins to your digital wallet, and you can
equally send Bitcoins to others. Every single transaction is recorded, and it allows people to
follow the record of Bitcoins, preventing them from spending coins they don’t own, copying
transactions, or reversing them.
Bitcoin is frequently utilized through an exchange. Without any third-party oversight, Bitcoin is built on peer-to-peer technology and
relies on the block chain and the cryptography that secures it.
It is not essential to submit personal information such as your name and address when
completing a bitcoin transaction.
Bitcoin is a protocol and a collection of entirely digital
procedures. It is also the most successful of hundreds of attempts to employ cryptography, the science of
creating and breaking codes, to generate virtual money. Hundreds of imitators have followed in
Bitcoin’s footsteps, yet it remains the most valuable cryptocurrency by market capitalization.
What is Shorting?
The concept of shorting, otherwise known as short-selling, is the act of selling an asset that you
do not own with the hope that its value will fall and you will be able to benefit from the trade. In
other words, you borrow an asset (in this case, bitcoin) from a brokerage and sell it immediately
on the open market to profit from dropping markets.
Then you wait for the price to drop so you may repurchase it at a lesser price. After returning the
initial amount of the asset purchased and pocketing the difference between the price at which the
item was sold and the price at which it was purchased, you will make a profit.
If you are not careful, short selling can work against you, but it can actually be highly profitable
if you are willing and able to tolerate the risk.
However, under any circumstance, short selling
can be risky speculation at best. It is done primarily by experienced investors who clearly
understand the risks, but you will agree that every investment bears some level of risk. When the
price of bitcoin fluctuates swiftly, you can make money just as quickly as you may lose money.
When the market is highly volatile for no apparent cause or prediction, it is recommended to
refrain from making any trading decisions unless they are in line with your trading strategy.
It is very important that before you decide on any investment, you should carefully consider your
objectives, the level of experience you have, and your risk appetite. A possibility exists that you
might lose some or, in fact, all your money; therefore you should not invest an amount of money
that you cannot afford to lose.
A trader who enters a short position anticipates the price of the asset to fall, indicating that they
are “bearish” on it. Short selling stocks is a popular short-term and long-term trading strategy. A
long position is the total opposite of a short position, in which a trader purchases an asset with
the intention of reselling it at a higher price later on.
Bitcoin is highly volatile, and the price can move up and down in a matter of seconds. Selling
short in any asset is unstable, but it is more dangerous in the unregulated crypto markets.
How to Short Bitcoin
There are many ways to short bitcoin, but I will focus on 5 ways proven ways to short bitcoin in
Direct shorting of bitcoin is an option for those who want to buy and sell the cryptocurrency
directly. It is the simplest way of shorting bitcoin; you buy the preferred amount of coin, sell it at
a price you are comfortable with, wait for the price to decline, and then repurchase tokens. Of
course, if the price does not shift as you anticipate, you may lose money or bitcoin assets in the
While the profits from shorting bitcoin directly can be huge, the losses can be devastating—the
more significant the reduction in the price of an asset, the greater your earnings. When the price
falls to zero, you can make the most money. That way, you won’t have to pay anything back for
the loan you received, and you will be able to retain the rest as profit.
Shorting Via Futures on CME/CBOE
Futures are standardized exchange-traded financial derivatives that bind an investor to purchase
or sell an underlying asset, such as a stock index, a commodity, or a currency, at a future price
and date. Futures contracts were originally designed to protect traders against price swings in commodity
markets. The availability of a futures contract, on the other hand, quickly expanded beyond
commodities. Futures contracts can now be bought with a variety of assets, including
cryptocurrencies like bitcoin.
Futures contracts allow investors to wager on whether the price of an asset will rise or fall
without having to own it. Bitcoin futures contracts on the Chicago Merchantile Exchange (CME) and Chicago Board Options Exchange (CBOE), for example, are cash for delivery, which means
that no “physical” bitcoins change hands until the contract has matured or been closed out.
Instead, only your profit or loss is traded.
Bitcoin futures, which can be found on the CME, start trading at 5 p.m. from 4 p.m. to 4 p.m.
Sunday through Friday, 8:00 a.m. to 5:00 p.m. Between 4 p.m. and 6 p.m., there is one hour of
inactivity, between 5 p.m. and 7 p.m. The bitcoin futures contract’s listing cycle is the March
quarterly cycle, which includes March, June, September, and December and the next two serial
months not included in the March quarterly cycle. Serial months are months that are not part of
the quarterly cycle and can be used to trade futures. The last trading day of the month is the last
The futures contracts can be purchased for as little as 0.001 BTC and have a one-week to the
three-month expiration date. Shorting via features gives you the advantage of being able to be
exchanged even before the contract expires. This means that you, as an investor, can acquire a
futures contract and sell it to another investor to realize some of the contract’s value (if it has
value) before the expiration date.
The vast margin requirements of both the CBOE and the CME constitute a stumbling hurdle for
some individual participants in the futures market. Due to the extreme volatility of the
underlying asset, both exchanges demand margin capital of more than 40%. On the CME, for
example, each contract represents five contracts, so if Bitcoin is trading at $10,000, a margin of
more than $20,000 is necessary to trade one contract.
Contract for Differences on Retail Brokerages
Contract for Differences (CFD) Trading is a standard method of short-selling. Crypto trading
pairs are available on several cryptocurrency trading platforms. CFD trading would appeal to
anyone looking to benefit from crypto they don’t own. The contracts are traded without the
underlying asset being transferred. The only transfer of funds is the settlement of the difference
between the opening and closing exchange rates.
In a margin account, short-selling is common. Investors must deposit a portion of their assets to
guarantee to be able to purchase tokens at the desired price. These initial deposits say 50%,
stay in the investor’s custody and are merely retained as security by the exchange. If you are a
retail investor without access to a broker that offers CME/CBOE bitcoin futures contracts, you
can easily short bitcoin with an online CFD broker like AvaTrade.
CFDs are similar to futures contracts as they function in the same way, but they are designed for
individual investors. CFDs allow investors to wager on an underlying asset’s price increasing or
decreasing without physically possessing it. CFDs move as a result of market rises and falls,
which are based on a constant game of supply and demand, with the market level rising and
falling as a result of this equation.
When markets appear to be on the rise, more investors are betting on the underlying asset or
market. If a market seems like it’s about to decline, traders will sell off their positions, resulting
in excess supply, which pushes prices down. As a general rule, something in high demand will be more challenging to come by than something in copious supply, putting upward and downward pressure on pricing in different situations.
Fortunately, CFDs can be profitable over time. While inexperienced and experienced traders
alike must stay on their toes to make a profit, it is entirely possible with a solid understanding of
fundamental trading skills, a thorough understanding of CFDs, and guidance to get you started.
Shorting Bitcoin on Cryptocurrency Exchanges
Shorting bitcoin on cryptocurrency exchanges functions in the same way as shorting bitcoin
using CFDs. When short-selling bitcoin on a cryptocurrency exchange, you are selling bitcoin
that you do not own. To do that, investors can borrow bitcoin from margin lenders on the
exchange for the duration of the open position. Once investors close out their bitcoin short, they
gain or lose the difference from where they sold and where they are buying back minus the
margin lending fee, which differs from exchange to exchange.
Leverage is a unique investment option offered by several Bitcoin exchanges. This means they
will let you borrow more money than you now have in the exchange. You can, in turn, buy more
coins and sell them to make more money than you could with your initial investment. Leverage
is the process of multiplying your initial capital by a set ratio. If you select leverage of 1:5, you
will be able to borrow up to five times the amount in your account. As a result, you may now buy
more coins and sell them when you think it’s a good time, generating a lot more money from a
tiny original investment.
Leveraged trading is one of the riskiest investment options available. It necessitates a thorough
understanding of the market and your investment, to be effective with this method
you must have perfect timing. If the exchange suspects that your investments will go wrong, it
will terminate your trade early, keep your margin, and force you to return your loan.
Experienced cryptocurrency traders tend to prefer to short bitcoin on dedicated crypto-asset
exchanges. So for investors who prefer to trade regulated financial products and are happy to
receive their profits in fiat currency, bitcoin futures or CFD would be the better option.
This method of shorting bitcoin is also quite simple. Traders who participate in prediction
markets can generate an event and bet on its outcome. It is possible for you to predict that the
price of Bitcoin will drop by a particular percentage, and if your prediction is proven right, you
The premise behind these markets is that investors can forecast when the Bitcoin bubble will
burst. Investors then place bets on whether or not these forecasts are correct. Investors create an
event and then place bets based on the result in a prediction market. When it comes to shorting
Bitcoin, the outcome will be determined by the digital currency’s performance.
You buy shares if you think the prognosis is correct. You sell if you are on the other side of the
coin. So you are looking for a prediction that the coin’s price will fall in order to short Bitcoin.
When you do, you take a risk with your prediction. On the other hand, if you see one that predicts a Bitcoin rally, you should sell!
Use different Bitcoin exchanges to gain experience. Choose a platform. You can utilize a variety
of prediction market platforms, but you might also familiarize yourself with the exchange before
making your first investment if you do some thorough research. Choose a prediction that appeals
to you. If you are going to short Bitcoin using prediction markets, be sure the projection makes
sense to you.
Pros and Cons of Shorting Bitcoin
• You as a trader benefits from price reductions without having to work too hard.
• Short selling improves market liquidity, which has a beneficial impact on overall market
• The market is very unstable due to the fact that bitcoin itself is a volatile asset, just like
When Is The Best Time To Short Bitcoin?
Short selling can be very tricky at times because the amount of coins you can sell is limited
compared to buying, which has no limits because the coin can go as high as it wants. As a result,
you should only sell when you believe there are sufficient causes for the coin’s value to fall. To
assist you in making your Bitcoin short-selling selections, you can learn basic market analysis
tools or connect with qualified finance specialists. As soon as you notice the crowds selling,
begin selling. When the bulk of people are buying the coin, don’t be caught selling it.
Shorting Bitcoin can be more challenging at times than it is at others. Shorting Bitcoin against
long-term uptrends, for example, is difficult, to say the least. Bitcoin has a tendency to appreciate
in value over time. On the other hand, this digital asset’s market value can drop by thousands of
dollars in minutes, so you have to be very careful when shorting bitcoin.
When executing a short sale, keep in mind that the maximum profit is made when the Bitcoin
price is zero, whereas there is no profit margin limit on a buy. The price will crawl slowly up,
but if it goes down, it will go down by elevator, goes the mantra in any financial market, from
equities to cryptocurrencies. On the other hand, although bullish advances take time to gather
and develop, bearish moves are usually plain and quick. Because bullish moves are generally
accompanied by suspicion and profit-taking measures, whilst bearish moves are always
accompanied by fear and sell-offs, cut losses regardless of price.
Conclusively, remember to always watch out for the risk and volatility before short-selling
bitcoin because the price of bitcoin cannot fall below zero; there is a limit to how much profit
may be gained and the risk of uncontrolled losses when shorting bitcoin. You will agree with me
that shorting bitcoin is a fantastic way to make a lot of money quickly, but it is also quite risky.
Make sure you invest only the amount of money you can afford to lose while shorting bitcoin.
Also, keep up with current pertinent happenings so that you can predict any price changes.
Shorting bitcoin is great once you are equipped with the right information.