Short-selling is usually associated with stocks. Bitcoin (BTC) and other cryptocurrencies are also short-listed, especially since they’re volatile. With short-selling, volatility gives investors a chance to make big money.
Short-selling is an investment practice where you borrow stocks and sell them at a loss in hopes the price will drop. The purpose of shorting cryptocurrency is to anticipate its value declining and bet it will continue to decline, so it can be bought at a lower price later. It is possible to send and receive bitcoins using a Bitcoin wallet.
Even when the value of an asset drops, it’s possible to make a profit, which is counterintuitive to the idea of making a profit when the value rises. Shorting has a high potential for loss, so it’s important to understand the risks.
Cryptocurrencies can be shorted in a few different ways, and it’s good for investors to learn how to short them, especially if they think certain cryptocurrencies will crash. One can also use shortening to hedge against cryptocurrency losses.
Investing in shorting Bitcoin (BTCUSD) might be a good idea for investors who believe the currency will crash at some point. Since Bitcoin’s rise into mainstream finance, the number of places and ways to short it has multiplied. Here’s how to short Bitcoin.
You can short crypto using options or futures contracts, CFDs, or margin trading. Here’s a breakdown of each method.
- Margin Trading
Cryptocurrency margin trading platforms are a great way to short Bitcoin. Margin trades let investors borrow money from a broker to make a trade, which is allowed on many exchanges and brokerages. Margin trading is available on many cryptocurrency exchanges at this point, including Kraken and Binance.
- Binary Options Trading
It is possible to trade binary options on several offshore exchanges, but the costs (and risks) are high. If you choose not to sell your put options, you can limit your losses in binary options trading over futures.
- Futures Market
The bitcoin futures market is similar to that of other assets. By purchasing a security with a futures contract, a buyer agrees to receive a security at a specified price and date. By buying a futures contract, you are betting that the price of the security will rise, allowing you to get a good deal later. By selling futures contracts, you are indicating that you are bearish about Bitcoin and that you predict a price decline.
- Prediction Markets
Shorting Bitcoin can also be done through prediction markets, where you place bets on future events. The prediction markets in crypto are similar to those in mainstream markets. The result of an event can be used by investors to make a wager.
- Using Bitcoin CFDs
Contract for differences (CFD) is a financial strategy that pays out based on the difference between open and closing prices. The CFDs on Bitcoin are essentially bets on the price of the cryptocurrency. Shorting bitcoin is the act of predicting that prices will decline through the purchase of a CFD.