Posted 2 years ago | by Ben Armstrong
How to Short Bitcoin
Like any widely traded financial asset, a person can make money from Bitcoin's price movement in either direction. If you sell Bitcoin to make a profit, you can learn how to short Bitcoin. Most people are more familiar with going 'long' on an asset, as buying things is generally easier than making money from a fall in their prices.
In trading parlance, going 'long' is buying an asset in the hopes it will appreciate in value, and going 'short' is the opposite position. With so many calls for Bitcoin's (BTC) price to fall, there could be some questions about how a trader could profit from a lower BTC price.
The good news is that the trading options for cryptocurrency have grown over the past few years. Today there are numerous ways to speculate on the price of BTC, no matter which direction you think it will go. Not every method of trading tokens is created equal, and it makes sense to understand what you are doing.
Leverage trading websites like the popular ByBit Exchange allow users to take advantage of these price movements.
Practical Bitcoin Short Selling
The easiest way to short BTC is probably going to be via derivatives. There are numerous derivatives brokers out there who are offering crypto contracts, and some of them are a pretty good deal.
One of the most popular crypto derivatives brokers is BitMEX (who we are using as an example, and not endorsing in any way, shape, or form), who offers a wide range of crypto derivatives, in addition to leveraged trading.
Keep in mind that when you trade derivatives, you aren't actually trading in tokens. Instead, you will be trading in a contract that is tied to the value of a specific token. This arrangement introduces counterparty risk, as the person or entity on the other side of the trade gives the contract its market value.
Shorting Bitcoin With Derivatives
One thing to keep in mind when trading in crypto derivatives is that while there are numerous brokers out there, they won't all offer you the same terms on the contracts.
Financial derivatives have terms, like the amount you pay on a daily basis to hold the contract (called the swap) and the terms offered by native crypto exchanges are generally better than retail CFD brokers.
If you want to take on larger position, or have to think about counterparty risk, there are BTC derivatives traded on the Chicago Mercantile Exchange (CME), which will have counterparties that are major financial institutions.
In addition to crypto derivatives, there is also a new crop of tokens that act as a leveraged way to go short BTC, as well as other kinds of cryptos. These appear to be a viable way to trade the crypto markets, but they clearly have to be structured along the same lines as a deritives contract.
Again, counterparty risk enters the picture, as the leveraged tokens are only worth as much as the company that issues them.
A Word on Leverage
Most of the exchanges that offer the ability to short BTC will also offer leverage, which can be a double-edged sword for a trader. While the dreams of big gains from a leveraged position can be alluring, statistically, a trader is far more likely to be wiped out by using lots of leverage.
Derivatives brokers offer traders leverage, they don't force them to use it, and it isn't hard to take on a position with small amounts of leverage, or none at all.
Where to Start Trading
Now you have learned how to short Bitcoin and understand the risks associated with leverage trading. If you are still interested in leverage trading then it is time to start looking for legitimate websites to begin your trading journey. While BitMEX is the most popular site in the world for leverage trading, ByBit is a new competitor that is making big waves in the industry.
BitMEX is currently under a CFTC investigation due to the founder being an America citizen. ByBit does not have this issue as it is a foreign owned company. However, to use ByBit, citizens from unapproved countries must use a VPN such as NordVPN or a free VPN app on the Apple or Android app stores.
If you would like to give ByBit a try you can do so by clicking this link: http://bybit.bitboy.live.
Disclaimer: This post does contain referral links