May 4. 2018
GFW Editorial Staff
Disclaimer of Risks To Consider: shorting bitcoin or any cryptocurrency is extremely risky. Only use the money you can afford to lose when trading any direction in bitcoin or the other cryptocurrencies.
Bitcoin speculation occurs through long and short positions across trading platforms. Longing and shorting has been a more favorable solution for most sovereign currencies and assets over the past few years. Bitcoin speculators rely on these same tools to guesstimate how the price will evolve in the coming hours, days, and weeks. Given the current BTC price trend, the GFW Editorial Staff expects a dramatic price deterioration in the coming months. As such, shorting Bitcoin becomes quite appealing. Below is a brief list of ways to short Bitcoin and – hopefully – make a profit while doing so.
#7 Bitcoin Margin Trading
One of the most common ways to short Bitcoin is by using a cryptocurrency margin trading platform. As several significant Bitcoin exchanges give users this opportunity, albeit some specialized trading platforms are worth checking out. By using margin trading, one essentially “borrows” money from a broker to make a trade. Do keep in mind there is also a leverage factor, which can exponentially increase your profits – and losses.
#6 The Bitcoin Futures Market
Another popular option to short Bitcoin without friction is by venturing into the futures market. A future is a financial contract where a buyer agreed to purchase a security, which is represented by Bitcoin in this case. This security is to be purchased at a future date and a fixed price. In most cases, the person buying a futures contract feels the price per Bitcoin will go up, and they will be able to purchase Bitcoin below the market price when the contract “expires.”
Selling a Bitcoin futures contract indicates a bearish mindset and an expectation of how the Bitcoin price will decline by the predetermined date. Right now, there will be a fair few futures contracts for sale, as the Bitcoin market is in a downward spiral. Selling futures contracts is an excellent way to short Bitcoin.
#5 Lending To Short Bitcoin
Several platforms allow users to receive a loan to short Bitcoin. While this is a somewhat complicated and lengthy process – including a credit check – it is a great way to short Bitcoin. More importantly, clients using such a service will remain anonymous to the public, yet have their identity verified by the company providing the service. For more privacy-centric users, this may not necessarily be the best solution, even though it is worth checking out.
#4 Binary Options Trading
CALL and PUT Options trading is another opportunity for people looking to short Bitcoin. People looking to short Bitcoin would execute a PUT order, preferably using an Escrow service. Traders who feel the price will go down aim to secure the ability to sell Bitcoin at today’s market price, even if a downward trend would occur. Speculators using a PUT option, provide an incentive to potential buyers in the form of an even lower cost per Bitcoin than whom the speculator hopes to get. For example, if someone wants to short Bitcoin at the value of US$750 yet wants to secure that price even when the value drops to US$700, they could settle to sell for US$725 as a “premium.”
#3 Bitcoin Options
A Bitcoin option is slightly more advanced than its binary option counterpart. A fall in Bitcoin value will earn a profit, which is precisely what shorting Bitcoin is all about. Options allow speculators to bet the value of Bitcoin will be lower by a specific date or how it won’t reach a particular threshold above its current price within a period. Using Bitcoin options can be done through one of the many platforms or speculators can create their own.
#2 Prediction Markets
Even though prediction markets are a relatively new development in the cryptocurrency world, they can be used to great advantage to short Bitcoin. A prediction market allows anyone to create any event they like, and wage on the outcome. For example, one could create an event, stating how Bitcoin’s price will drop to US$xxx by y date. If anyone takes up the speculator on that bet and loses, the speculator will have effectively shorted Bitcoin and made a profit Keep in mind prediction markets are rarely used to short Bitcoin right now, and this may not be the best solution to make a profit.
#1 Short-selling Bitcoin Assets
The rare breed of cryptocurrency speculators who want to buy and sell actual Bitcoins can look into short-selling Bitcoin. This works as follows: sell Bitcoin at a price you feel comfortable at, wait until the price drops and repurchase Bitcoin. Although this is how most “traditional” traders make money, it is an efficient way of shorting Bitcoin. The only downside is how getting the price movement wrong will result in a net Bitcoin loss. Buy low and sell high is the most efficient way to publicly short Bitcoin and try to persuade other traders to do so as well.