What are the best ways to short sell Bitcoin? Short selling Bitcoin is a specific method of trading in it when you intend to make the most out of a drop in price of the crypto asset.
Basically, it is just like borrowing an asset, here Bitcoin, and selling it at the prevailing price. After some time later, you purchase them again to pay back the lender.
However, this means that, if the price of Bitcoin is not low when you buy, you may have to purchase it at a rate higher than that you borrowed.
Shorting Bitcoin is however risky and is against the uptrend especially in the long term. Longer this trend, higher is the risk. You can expect to make maximum profit only at a zero Bitcoin price.
However, bullish moves or rise in prices are much slower than its falling or the bearish moves. Make sure that you have the capital to cover the losses incurred due to quick rise in price. Therefore, keep a close watch on it.
Ideally, you will need to analyze the market to identify the short selling opportunities based on the past events that may have caused a significant sell off and the events that have had little or no impact on the price of the asset.
Even then, you should invest only when you are confident that there will be a price drop because short selling can be very risky. Check out best crypto scalping tips.
10 Best Ways to Short Sell Bitcoin
Bitcoin is one of the most popular and widely used crypto coins by the traders. Though it comes with huge prospects, there is no denying the fact that it may crash at some point of time in the future.
In order to play safe and avoid losses, it might be a good option to short Bitcoin.
In order to short sell Bitcoin, you will first need to place an order for it with a trading platform.
They will sell the coins from their own stock and hope that you will pay them back later with the same number of coins.
They can however recall them at any point of time after giving you a short notice anticipating a chance for a price drop.
Therefore, go through the rules and regulations before you choose a trading platform.
There are lots of ways in which you can short Bitcoin. If you are unaware of them, here is the list of ways that are best and most commonly followed by traders to short bitcoin.
1. Margin Trading
This is probably the easiest way to short Bitcoin. You will find several brokerages or crypto exchanges such as Kraken and Binance being the top choices, that will allow margin trading.
This is the process in which investors can borrow money from the broker and make a trade.
However, in this process there are several different leverage factors that you should keep in mind. It can either increase your profits or enhance your losses both.
2. Futures Market
In case you do not know, just like all other crypto assets Bitcoin too has a futures market. If you want to make the best use of it and make a futures trade, you will have to buy a security with a contract.
This contract will mention the time and price at which the security is to be sold. When the price of the security rises to get a chance to make profits. This is the good thing about buying a futures contract.
On the other hand, when you sell a futures contract this indicates that the price of Bitcoin will fall in the future. It also signifies your bearish mindset.
Selling futures contracts is a great way to short Bitcoin which is why there is a significant rise noticed in Bitcoin futures investments on both brokerage and crypto exchange platforms.
3. Binary Options
This is also a good way to short Bitcoin. In this form of trading you get both call and put options.
All you have to do is implement a put order to short Bitcoin by taking help of an escrow service.
The unique aspect of this form of trading is that you will be able to sell the coins at the current market price even if it drops in the future.
You can avail this option from one of the major offshore exchanges but you should be wary of the high cost and the inherent risks in it.
4. Prediction Markets
This is another good way to short bitcoin. Though it is a new concept in the crypto industry, the prediction markets allow the investors to create a specific event that will cause a significant impact on the price of Bitcoin due to the anticipated result.
It may decrease by a significant margin, enticing people to buy them and you will stand a better chance to make some profit if the bet comes to pass.
CFD stands for Contract for Difference and in this process you do not have to borrow the Bitcoins from anyone and then sell them probably at a premium and then again buy them back to repay your ‘loan.’
Instead, all you have to do is simply agree to pay the difference in value.
This is a hassle free process and you get paid when the price drops significantly to create a difference. All you have to do is get your account verified and open a trade. Just make sure that you choose the ‘sell’ option and not ‘buy.’
6. Tracker Funds
Shorting Bitcoin Tracker Funds is also a good way to choose to short Bitcoin.
There are several European retail and institutional investors that allow it by using Bitcoin Exchange Traded Notes or ETNs.
These are currently available at the Nasdaq OMX exchange based in Stockholm. These ETNs usually come either in USD or in Euro denominations.
On the other hand, institutional or accredited investors in the US can short the Grayscale Bitcoin Trust as well.
However, keep in mind that the Bitcoin Tracker Funds are normally traded at a premium and therefore shorting these funds may not be as lucrative or productive as shorting Bitcoin through CFDs or Futures Market.
7. The Bitcoin Investment Trust
The Bitcoin Investment Trust is created by an investment firm Grayscale and is usually known as GBTC.
This one and only non-futures product available in the United States normally trades over the counter on the exchange. This helps the investors to track the price of Bitcoin directly.
In order to short Bitcoin through it, you will need to use one of the different Exchange Traded Funds or ETFs available, if you are an European investor.
The good thing about GBTC is that it is backed by actual Bitcoins. These assets are stored safely in deep cold storage vaults that come with multi-signature addresses.
Another good feature of the GBTC is that it is permitted for IRA accounts though it is quite a risky instrument to buy or short.
This is because of the volatility of Bitcoin and also due to the fact that it trades Bitcoin at a massive premium as compared to the actual price of the coin. Therefore, use extreme caution if you use GBTC.
8. Nadex Spreads
Nadex or The North American Derivatives Exchange is based in the United States and is a regulated exchange. This specific exchange offers both spreads and binary options to almost all investors.
Choosing the spreads options is quite a good way to short Bitcoin because it will limit your risks due to the exposure to the short and long side of Bitcoin both.
Moreover, you will not need to own a digital wallet because all contracts are settled in US Dollars.
The best part of it is that both the short and long selling are comfortable and at the same time the risks involved in it along with the rewards offered are clear and pre-defined.
Therefore, you will know about how much you can gain or lose even before you enter into a trade. This makes it perhaps the most conventional way to short bitcoin.
9. Blockchain Related Stocks
Ideally, shorting blockchain-related stocks does not only allow shorting Bitcoin but also the entire crypto range.
This is an ideal way to go. There are several such stocks available which includes and is not limited to Riot Blockchain or RIOT, Long Blockchain or LTEA, Longfin or LFIN, and more.
All of these are listed in Nasdaq. You can choose anyone for you to short the coin according to your preference and need.
9. Leveraged Bitcoin Trading Provider
You can also find a leveraged Bitcoin trading provider to short Bitcoin. These special providers operate in a different way than a traditional crypto currency exchange.
The unique aspect of the leveraged trading platforms is that it offers multiple products such as spread betting and CFDs or Contacts for Difference.
In a traditional crypto exchange you will need to borrow the crypto asset but when you work with these providers you do not need owning the underlying asset.
Instead, all you have to do here is take a position. Then, you predict whether the price of Bitcoin is going to decline or increase and based on your prediction you will get your reward. You will make profit if you are correct and lose if you are wrong.
CFD trading is also a type of leveraged trading where you will need to make a deposit of a very small amount in order to get an exposure to the complete trade value. This deposit amount may vary according to the asset type and class.
Your exposure will however depend on the trade value and not on the amount of deposit you made. This means that your profits, or losses, will depend on the full exposure and not on the deposited amount.
In order to make sure that you get just the right benefits, make sure that you choose the right leveraged Bitcoin trading provider. You may find their worth and reliability and also get a practice on shorting Bitcoin by using their demo account before signing up.
Short selling Bitcoin is a risky process to make money when the market is bleeding. This is good for experienced traders only if they choose the best ways to do it and stay updated with the events that may change the price direction.