For example, a person could sell BTC at $35k and buy it back at $30k resulting in a modest increase in Bitcoin. The risk with selling the actual Bitcoin is missing out on a lower price and having to buy back at a higher Bitcoin price. Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 71% of retail investor accounts lose money when spread betting and/or trading CFDs with this provider. You should consider whether you understand how spread bets and CFDs work and whether you can afford to take the high risk of losing your money.
If you are looking to short bitcoin — believing that BTC prices will go down in the future — you can sell a futures contract. When BTC prices drop, you buy BTC at a lower price and sell it to the buyer at a higher price (predefined in the contract as the settlement price). Another way to bet against the price of Bitcoin is to spot sell Bitcoin and wait for the price to drop before buying it again.
These actions dropped Bitcoin’s price sharply following the news. There is another update related scenario that can drop the price of a digital asset. When important upgrades see considerable delays, it can cause a loss of faith by investors.
Step 1: Understand Bitcoin Short Selling
Margin trading is an investment strategy in which a small amount of money is used to make multiple investments of the same size. Users leverage a small amount of cryptocurrency, borrow a certain amount of cryptocurrency, and then go long (buy)/short (sell) to maximize the use of their funds. Unlike futures or margin trading, leveraged tokens allow you to short Bitcoin and other cryptocurrencies without the risk of liquidation or the need to monitor a maintenance margin. This comprehensive guide for PrimeXBT traders has provided all the details needed when short selling Bitcoin. Short selling provides you with a way to still generate profits when the market is down or when you expect the market to crash.
If the price of Bitcoin moves according to the direction you have bet on, your profits will be significant. However, if the price moves in the opposite direction, you will be in the loss zone. The other way of shorting Bitcoin is through the prediction market. The prediction market is nearly similar to the ordinary market, only that in this case, you are betting on the future price movement of Bitcoin. Due to the concept of borrowing, you should consider that you are exposed to limitless losses.
- As with any investment, learning how to short sell Bitcoin is not a walk in the park.
- Many people start short selling Bitcoin by using a margin trading platform dedicated to cryptocurrencies.
- If you have experience with options trading, this method might suit you.
- When you short Bitcoin binary options, you are essentially betting that the price of Bitcoin will go down in the specified period of time.
- The benefits include high leverage, which equates to low margin requirements, making it ideal for short selling Bitcoin.
- If you’re betting that a crypto’s value is going to fall, and it rises instead, you stand to lose.
It’s essential to consider factors like fees, security, and available trading pairs when choosing an exchange. Next, select the BTC/USDT trading pair and sell the borrowed cryptocurrency. It is possible to trade crypto on margin, depending on the exchange or brokerage you use, and whether that exchange has offered you the ability to trade on margin.
Spot traders can sell and rebuy Bitcoin for substantial gains if done correctly. Short selling Bitcoin requires holding BTC on the spot market instead of using collateral such as USDT for leveraged trading. Traders looking to sell Bitcoin and rebuy for a profit can do so on any centralized or decentralized exchange that supports BTC margin or leveraged trading. PrimeXBT ranks as one of the best platforms for shorting Bitcoin.
Can you short-sell crypto?
But be warned that there generally are interest charges (you’re borrowing money, after all), and again, a risk of losing more money than you have in your account. But it’s important to understand that shorting any asset, including crypto, is an advanced trading strategy that could easily backfire. While it’s cyber security stocks possible to make a quick return, shorting also requires deep knowledge of the markets and derivatives. Usually shorting isn’t recommended for traders who are just starting out, because of the high risk it involves. If you do decide to short Bitcoin, make sure you only invest money you can afford to lose.
Let’s delve a little deeper into these four to understand what each method entails. Mintz also pointed to the fact that market conditions outside of Bitcoin are very different than they were in late 2017. However, if the average Bitcoin retail investor is anything like the average person, even a small Bitcoin investment can be dangerous to one’s financial wellness. However, if your computer’s IP address is located in the United States, it’s unlikely that you’ll be able to create an account. Another great way to short crypto is by looking for a double top pattern.
For example, if the cryptographic hashing algorithm of Bitcoin is broken, the coin will become unsecured and its market value will plummet. Along the same line of thought, Best forex system major coding exploitations could also cause investors to lose faith in this cryptocurrency. Importantly, you will need to pay back any loan you take, plus fees.
Betting Against Bitcoin
While we’re in a short-term bear market, the macro trend for Bitcoin is still arguably in a bull market. And if you know how to play it, you can profit on either side of the run. In the following section, this guide will walk you step by step through the process of shorting Bitcoin. Many well-known altcoins were decimated, with most cryptocurrencies down over 75% from their all-time highs. With the markets in a free-fall, you may want to know how to short bitcoin. Short sellers, to a certain extent, are very beneficial to any market.
What Is Margin Trading?
Now, if the asset that you sell is yours, you are not particularly making any money when you buy it back later. While Bybit and FTX are fantastic options for the task, you don’t necessarily need to open an account on an exchange to short bitcoin. A number of DeFi tokens are available to help you short Bitcoin just by holding them.
It was created in 2008, and it has only started receiving attention recently. The history of Bitcoin is still short, and there is not much information that can allow an investor to make an informed decision. After opening your position, you will have a chance to multiply your investment by achieving a high return on investment (ROI).
How does shorting bitcoin work?
Price volatility in the underlying asset can make it difficult to accurately predict the price movement of the underlying asset. Some of the biggest futures trading venues of the cryptocurrency are not regulated. This means that investors have fewer recourse options if something goes wrong with their trade.
If you see this pattern forming, it’s a good time to consider shorting crypto. It really depends on the market conditions and your own personal investment or trading strategy. However, there are a few general things to keep in mind when considering shorting crypto. You can also do advanced settings; see the KuCoin trading bot guide for more information on these options.
The process includes borrowing the cryptocurrency, selling it, waiting for the price to drop, and then buying it back at a lower cost. The difference between the selling and buying prices is the trader’s profit. If you have enough of your own funds, you can also short sell Bitcoin directly. All you need to do is sell BTC when the price is high and then buy back when it’s low.
For now, we would like you to read through the discussion in detail to understand the basic framework for shorting bitcoins. Regardless of how you approach it, always invest and trade with no more than you can afford to lose. Though this strategy might not appeal to all investors, those with the stomach for it can reap gains if their bet against what is lot in trading Bitcoin pricing succeeds. Sell off tokens at a price you are comfortable with, wait until the price drops, and then buy tokens again. Of course, if the price does not adjust as you expect, you could either lose money or Bitcoin in the process. Some of the best cryptocurrency exchanges for shorting Bitcoin include Binance, Kraken, and KuCoin.