Are you new to the cryptocurrency game and curious about how shorting the cryptocurrency market works? Or are you curious about whether bitcoin can be shorted and how to become a successful trader in this era? If yes, then you are at the right place because I’m going to break down everything about shorting crypto.
This will be a beginner’s guide to knowing what crypto shorting is and how it works. Besides this, I will also discuss some best strategies for shorting bitcoin and other cryptocurrencies.
So, let’s get started with the basics first.
What is Short-Selling? How Does It Work?
Short selling is a trading strategy that allows traders to profit from a decrease in the price of an asset or stock. Traders can short sell an asset by borrowing it from the broker and then selling it for money at a higher price or the same price.
After a short time, when the market or the prices go down, buy it and give it back to the owner or broker.
You simply profit from the difference between the two prices.
To understand how short selling works, let’s look at an example:
Assume that you borrowed an asset that is equal to $10,000 at that moment and sell it at a higher or the same price immediately. Now, you got $10,000, and you will wait for the market to go down. When the price drops down to $9000, you immediately buy the same asset and give it back to the broker.
The difference between buying and selling would be nearly $1000, and this will be the profit you have earned by short selling.
Now you understand what short selling is and how it works. But, the biggest question is, “Can you Short Crypto or Can you Short Cryptocurrency?”
So, let’s discuss this in detail.
Can Crypto Be Shorted?
Cryptocurrency can be shorted, but it’s a risky process. You can earn a huge amount of profit, but there is also a chance of losing the money. You may know that the cryptocurrency market is one of the most fluctuating markets, and prices go up and down very quickly or in a matter of seconds.
But, you can still short crypto if you closely examine the market and do the right things at the right time.
In order to short cryptocurrency, you will have to examine any digital currency closely. If you think that its prices are going to decrease in the near future, you can short it by borrowing it from an exchange like Binance and immediately selling it in exchange for dollars.
Now you will have to wait for a time when the market drops and prices go down to a certain level to buy that digital currency and return it back to the Binance.
You may also have to pay some interest against the borrowed digital currency. So keep that in mind.
In this way, you can easily short sell any cryptocurrency.
The biggest and the most popular cryptocurrency is, no doubt, Bitcoin, and you must be wondering how do I short Bitcoin. So, it is beneficial to know can you short bitcoins and how to short sell Bitcoin.
How to Short Cryptocurrency or Bitcoin?
So you want to short cryptocurrency or Bitcoin? It’s not that hard.
All you need to do is closely examine the market, follow top short-selling strategies, and you will be ready to make a handsome profit out of it.
Let’s get to know some beneficial strategies and tactics in detail.
Perfect Timing for Shorting Crypto:
The perfect time to short sell cryptocurrency is when the market falls. Short selling works best when the market is going down. That’s because there’s more volatility in a market when prices are falling, which increases your chances of making money on your trade.
It also depends on what kind of trader you are. If you are looking for a quick profit, you should target cryptocurrencies that have recently gone up in value by a lot. This means they will be more likely to crash quickly as well.
You can also use technical analysis tools like RSI or MACD to determine if the price of your chosen cryptocurrency is likely to increase or decrease in value over time. These tools will help you identify trends and patterns in price movement so that you can make more informed decisions about when exactly it’s time to short sell and make a profit.
Profitable Bitcoin Shorting Strategies
Shorting Bitcoins is a risky strategy, but you can do it by following some best Bitcoin shorting strategies that can help you make a good profit out of it.
Strategy #1: Direct Short Selling Bitcoins
This is the most common and simplest strategy that involves selling Bitcoins on an exchange and then buying them back at a lower price. The difference between the initial sale price and the price you buy back your bitcoins is your profit.
- You can make money quickly by taking advantage of sudden market changes.
- You don’t have to wait for long periods like with futures contracts; you can make money in a matter of minutes or hours.
- There are many risks associated with this strategy because Bitcoin prices can change quickly and dramatically, especially on volatile market days.
Strategy #2: Bitcoin Margin Short Selling
As the name states, this strategy works best to earn margin profit. It involves borrowing Bitcoin from your exchange and selling it on the market immediately against real money. Now, you will have to wait for the time when prices decrease, so you can buy Bitcoin again and return it back to the exchange.
In this way, you earn margin profit by investing exchange’s Bitcoins.
But remember, you will have to pay some money in interest because you are borrowing Bitcoins. It may be less or more, according to the exchange you choose to borrow.
- You can make a huge profit by borrowing more Bitcoins.
- Your exchange account will grow rapidly, providing you with more benefits in trading.
- There is a time limit to return borrowed Bitcoins on each exchange. If the prices don’t fall, you would have to face a loss or no profit.
- You will have to pay interest against borrowed Bitcoins.
Strategy #3: Bitcoin Future Trading
Bitcoin futures are the third strategy for shorting Bitcoin. The main difference between this strategy and the others is that you do not need to buy Bitcoin. You simply bet against it by selling futures contracts on the exchange.
This is a great way to make money if you believe that Bitcoin’s price is going down but don’t want to deal with all of the hassles of buying and storing it yourself.
To profit from this strategy, you must:
- Be able to predict what the future price of Bitcoin will be
- Have access to a premium account where future trading is allowed
- This is the most complicated strategy, but it also has the highest potential returns
- There is no need to pay the commission fee
- Risks are higher than in other strategies
- You may need to be an expert before using future trading to short selling Bitcoins
Strategy #4: Following Prediction Markets
The fourth profitable strategy to short sell Bitcoins is to follow the cryptocurrency market predictions.
This strategy is slightly different from previous ones because it doesn’t rely on technical analysis or social media sentiment. Instead, this strategy relies on market predictions.
In order to use this strategy, you need to find experienced traders who can predict the future price movements of Bitcoin and use their predictions as a guide for when you should short sell Bitcoin.
- Fewer calculations and hassle
- You can earn a quick profit by just following other experience traders’ prediction
- It can’t be used for long term
- Following someone’s prediction without analyzing the market can be risky
Best Exchange to Short Crypto
Now you know how to short cryptocurrency and bitcoins; you must be wondering which exchanges you should use to short sell bitcoins.
So, the following are some best cryptocurrency exchanges that you can use to short sell crypto in 2022.
PrimeXBT is one of the best exchanges to short crypto on. It allows traders to borrow money to trade on their platform. It provides users with low fees, high liquidity, and the ability to lend money against their assets.
Bybit is an over-the-counter (OTC) cryptocurrency trading platform that allows users to trade up to 100x leverage on Bitcoin, Ethereum, Litecoin, Ripple, and Dash.
The platform has an impressive user interface that makes it easy for beginners to get started with shorting cryptocurrencies.
Binance is one of the largest exchanges in terms of volume and liquidity when it comes to crypto coins, which means that it’s an excellent choice if you want access to a wide selection of cryptocurrencies with which you can short sell.
Plus, Binance has some nice features like margin trading functionality which can be quite useful to earn quick profits.
So, now you are more informed on how to short sell bitcoin and understand the entire process of shorting cryptocurrencies. Shorting bitcoin does not appear to be as easy as you may have initially thought.
In fact, this is a very risky business where you can lose on a lot of trades if you aren’t careful and don’t know what you are doing. In order to be successful at shorting bitcoin and other cryptocurrencies, it’s important to follow the strategies provided above that will limit your risk of losing money.
If yu want to know how you can profit from the volatilty of crypto with much lower risk that shorting, you may want to check out my review of Dan Hollings’ crypto training.