How to Short-Sell Bitcoin

If you believe that Bitcoin or another cryptocurrency was about to crash soon, short selling the asset might be your best bet. There are several ways you can go about doing this, for instance:

Direct Short Selling

This method involves directly buying and selling the actual Bitcoin at a certain price you believe it will fall below, then wait until the price drops and then buy the Bitcoin back again at a lower price. This strategy will only be effective, of course, if the price comes back up and corrects as you expected, otherwise you could simply lose the Bitcoin. Any crypto exchange or trading platform allows for this way of short selling, like the traditional and renowned Binance exchange for example.

Margin Trading

The easiest and most popular method of shorting Bitcoin is margin trading, which involves lending from a trading platform by means of a depositing a ‘margin’ as collateral in proportion to ‘leverage’ utilized. Leverage allows you to increase a position’s size, eg. 1:10 (10x) leverage will raise a $100 position to $1000, and 1:100 (100x) grows it to $10,000. So if you placed $100 into a short position against Bitcoin with 100x leverage, you will be able to short sell $10,000 (approx 2.8 BTC). If the price fell by just 5% the trade’s profit would be $500, as opposed to just $5 if no leverage was utilized. The leverage factor relatively increases your profits potential and increases the chance of loss, depending on whether the markets move in your favor. PrimeXBT is one of the most popular Bitcoin margin trading platform.

Futures Market

A future is a contract where a buyer agrees to buy Bitcoin at a future date at a certain fixed price. To short sell a futures contract, you’re agreeing to sell Bitcoin at a later date. The short futures position is an unlimited profit, unlimited risk position that can be entered by the futures speculator to profit from a fall in the price of the underlying asset. Futures markets are somewhat more difficult to find, but OrderBook.net is known as one of the best places to buy and sell bitcoin futures.

Binary Options Trading

Another way you can short sell Bitcoin is with options trading, where an investor pays a premium for the right - but not obligation - to buy or sell an agreed amount of Bitcoins on an agreed date with ‘put’ and ‘call’ options. If you wish to short a crypto asset, you'd execute a put order. This means that you would be aiming to be able to sell the crypto asset at a certain price and at a certain time - this is called the strike price. The put option gains value as the asset decreases in value below the strike price. A call option is the opposite and gives you the right to buy shares in the same way. Binary options are available through a number of offshore exchanges, the most prevalent being LedgerX, but the costs and risks are high.

Prediction Markets

Prediction markets have only come into the crypto-sphere recently and provide an alternate and unique means of shorting Bitcoin. They are markets created around events so that people can place a wager the final outcome of various events, whoever predicts the result correctly stands to profit. Therefore, an event could be created based upon the expected decline of Bitcoin’s price by a certain percent. Predictious is one example of a prediction market for Bitcoin.

Final Word

Financial and crypto asset markets will always have their ups and downs. Alternate strategies like short selling and margin trading provide a way to continue to profit from all market conditions and by maximizing even the smallest price movements with leverage.