What is Bitcoin Cryptocurrency Shorting?

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Shorting Bitcoin refers to a common practice, where crypto traders bet on the price declination of the cryptocurrency (or altcoins) to make more money on the borrowed BTC hedge fund.

Simply put that, short selling (often referred to as ‘shorting’) is an investment method to make money over an asset’s drop in price value.

It is more like cryptocurrency mutual fund investment in nature, but this one is betting against the price trend of crypto assets.

In the bitcoin cryptocurrency market, many people have learned some terminologies to make money with BTC.

There are still concepts out there like; “short bitcoin”, “short sell bitcoin”, “shorting BTC”, “go long bitcoin” or “go bitcoin short”.

If you have ever heard, or seen any (or all) of these concepts, please do not get confused, as they all mean same thing in the real-time world.

Due to these unusual terms in the cryptocurrency market, most cryptocurrency amateur investors have lost money to either; crypto scam, hacks, or wrong investments.

So it is always necessary to understand a particular kind of bitcoin trade before getting your money involved in it.

When investing and speculating on crypto assets, there are two ways to make money off your predictions.

Either you predict that the value of an asset will go up by purchasing and keeping it (to sell it in future to make money).

However, there’s yet another way around this crypto investment strategy – by betting against an asset price movement. The concept is called Short selling (or Shorting).

The term ‘Shorting‘ originally came from those that sells securities, but also applies to cryptocurrencies.

Many big business and finance world investors, including Billionaire Bill Gates, once revealed they would short Bitcoin, if there was a way that can allow them to do it.

Well, there are as much ways to short Bitcoin as possible.

In fact, there are plentiful.

Throughout this guide, you will see how bitcoin short selling works, including the best ways to short Bitcoin with some outline of the reasons and risks of shorting BTC.

 

How short selling BTC works

Basically, how to go short on bitcoin is by allowing you to borrow an asset, such as Bitcoins, and sell it at its current price. Later on, you purchase the Bitcoins to pay back to the individual or company that borrowed it to you.

Hopefully, when you go to repurchase the Bitcoins, by now, the crypto price value would’ve dropped, so it will be cheaper to purchase the assets that need to be paid back.

For an instance:

Michael shorts 1 Bitcoin.

  1. He borrows 1 BTC from Alice
  2. Sells the bitcoin for $10,000
  3. And BTCUSD price drops to $5,000
  4. He then buys 1 BTC for $5,000
  5. Michael gives the $5,000 BTC back to Alice

He makes a profit (for himself) – off $5,000 by shorting the hedged Bitcoin.

Are you still kind of confused?

See another example below:

  • You short sell 10 Bitcoins when the price is $4,000
  • This means you borrow 10 Bitcoins and sell them for $40,000
  • Price of Bitcoin drops to $3,500
  • You repurchase 10 Bitcoins to give back to the agency you borrowed from at 10*$3,500 = $35,000
  • Your total profit is $40,000-$35,000 = $5,000

Hope you got it now?

I guess you have already.

How can you short sell bitcoin?

Bitcoin Trading Strategy

To short Bitcoins, you need to contact a trading platform and place a short sell order.

The agency will then sell the Bitcoins from their own supply, based on assumption that in future you will repay them with an equal number of Bitcoins.

If you short sell 10 Bitcoins, for example, you will eventually have to “cover” those 10 Bitcoins, whether prices rise or drop. During price drop, it will be cheaper to buy these 10 Bitcoins back, but as price rises, it will be more expensive.

When short-selling, the individual who loaned the BTC to you, can generally recall the assets at any time and only with a short notice.

As market fluctuates at a rapid rate, costs can swing wildly (i.e. putting you at risk). Short selling bitcoin (or any cryptocurrency) can be risky if the lender calls in assets before prices had a chance to drop.

Short selling is actually very common with stocks, and most major crypto trading platforms allow you to short crypto stocks.

Other Cryptocurrencies to short

If you have noticed in the CoinMarketCap price movements, you will notice that whenever bitcoin price starts dropping; XRP (Ripple), ETH (Ethereum), Privacy Coins (like; XMR and PIVX) tends to drop too.

So shorting these cryptocurrencies will still have the same effect as Bitcoin.

Who lends bitcoins to be sold?

Short selling is only possible when Bitcoin HODLers are willing to lend the crypto assets they own for good profit income margin.

The reason a Bitcoin holder would want to do this, is that they can charge a fee for lending them.

This will give the Bitcoin holder additional income on their cryptocurrency investments. In addition, lending, or short selling crypto coin allows for a more liquid market on any broker platform.

What exchanges allow Bitcoin shorting?

Daytrading

Avatrade Platform: Bitcoin, Ether, Ripple, Dash, Litecoin

IQOption Platform: Bitcoin, Bitcoin Cash, Ethereum, Monero, Litecoin, Ripple, Dash and NEM.

Etoro Brokerage: Bitcoin, Ether, Ripple, Dash, Litecoin, Ether classic

InstaForex Brokerage: Bitcoin, Litecoin, Ripple

SimpleFX Platform: Bitcoin, Dash, Ethereum, Litecoin, BitcoinCash

Can you short Bitcoin on Binance?

No… not yet. Binance cryptocurrency exchange platform may have plans of enabling such feature on their platform in the future, but as at the time of writing this content, the cryptocurrency trading platform is void of such feature.

Can you short Bitcoin on BitMex?

Yes of Course! BitMex is basically a platform that enabled its users to access leverage trading for shorting bitcoins.

How to short sell Bitcoin on BitMex?

Shorting Bitcoin on BitMEX is an easily made in three steps.

  1. Click on ‘Trade‘ for trading screen
  2. Click on ‘Bitcoin‘ to select Bitcoin as cryptocurrency to trade
  3. Click ‘Sell/Short‘ to do a short selling. Buy/Long is the opposite.

Can you short Bitcoin on GDAX?

As GDAX is no longer in existence, due to the fact that Coinbase had to replace it with their newest platform – Coinbase Pro. So bitcoin short selling is no longer available on GDAX, but see below to find out if it is still possible to do it on the new platform.

How to short Bitcoin on Coinbase pro

Coinbase exchange doesn’t allow you to short Bitcoin. Coinbase Pro didn’t even introduce this trading feature yet either.

Where can I short Bitcoin with high leverage?

BitMEX, PrimeXBT and Delta Exchange are exchanges allow short Bitcoins with high leverage.

When can you short sell Bitcoins?

Since shorting Bitcoin is trading against a long-term uptrend; the longer a particular trend remains, the riskier it becomes. One thing to remember – the maximum profit potential of a short is limited to a Bitcoin price of 0, whereas buyers have no limit on their profit.

If you examine Bitcoin price charts, you’ll soon realize the truth of the old trading aphorism. Whereas bullish moves take time to build and develop, bearish moves tend to be relatively short and sharp.

Trying to short the top of a big bull run is tough; you’re likely to stop out multiple times as Bitcoin keeps rising like a stubborn zombie.

Keep in mind that if many traders are positioned similarly, a price surge may result as fearful traders compete to close their shorts (i.e. they buy back the Bitcoins they sold).

Risks faced in shorting Bitcoin

Short Bitcoin

Short selling crypto assets is totally different from buying, or going long on an asset (i.e. when you buy a crypto coin, you only risk what you have invested – if you trade with no margin since the price can’t be negative).

However, when you short Bitcoin you speculate in a decline in the price and the limit is zero for all assets. But the opposite direction, if the asset increase in price, is limitless.

Further words on shorting bitcoin

In whatever you do in the cryptocurrency world, don’t leave your cryptocurrency assets for too long in an exchange or brokerage. Get an offline secure crypto wallet that supports HD (Hierarchical Deterministic) feature to keep your wallet addresses private.

Also try to subscribe for one of the best recommended VPNs to hide your cryptocurrency transaction footprints on the blockchain network. This will help to make it very difficult for hackers to track your crypto transactions.

Before you start short selling bitcoins, make sure to understand all the risks involved in shorting cryptocurrencies. Also have it in mind that the tools of investment differs on different platforms and brokerages.

After you have fully understood the risks involve, you can then go ahead and invest in shorting bitcoins for cryptocurrency income for huge profit making.

Even though you can make good amount of money investing in cryptocurrency assets and instruments, please try to only invest what you can afford to loose if anything should go wrong along the line. Good-luck my friend.


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Disclaimer: Being a cryptopreneur does not mean am also a qualified investment adviser, and may not have a vested interest in some projects, or businesses mentioned here. None of the content(s) on this blog is a licensed investment advice, nor is it an advice replacement from a certified financial planner.