Which exchanges can you short Bitcoin on?

Short-selling is an investment method that allows you to benefit from drops in price of a particular asset. This post will teach you how to short sell Bitcoin and what to look out for.

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1. What Does Shorting Mean in Crypto?

Short selling (often referred to just as ‘short’) is an investment method to make money over an asset’s price drop.

How Does a Short Work?

Basically, shorting works by allowing you to borrow an asset, such as Bitcoins, and sell it at its current price. Later on, you purchase the Bitcoins to pay back the person or company you borrowed them from.

Hopefully, when you go to repurchase the Bitcoins, prices will have dropped, so it will be cheaper to purchase the assets that need to be paid back.

2. How to Short Sell Bitcoin?

To short Bitcoins, you need to contact a trading agency or platform and place a short sell order.

The agency will then sell the Bitcoins from their own supply, based on the assumption that in the future you will repay them with an equal number of Bitcoins.

If you short sell 10 Bitcoins, for example, you will eventually have to “cover” those 10 Bitcoins, whether prices rise or drop.

Short Sell CFDs

CFD means Contract for Difference. It means that instead of actually borrowing the Bitcoins, selling them and then buying them back at a lower price you agree to just pay the difference.

So in the case of CFDs, you will get paid the difference if the price drops without needing to go through all of the hassles of buying and selling the coins.

eToro supplies a cryptocurrency CFD service that allows you to short sell Bitcoin.

Shorting via a Bitcoin Exchange

Bitcoin exchanges geared towards crypto traders offer short selling options, and some allow for leveraged shorting too. Leveraged shorting means you can borrow more money from the exchange than you actually own there, in order to buy the Bitcoins you want to short.

Leveraging is considered very risky since if things don’t go as you intended, the exchange will close your trade sooner than you expected (because they know you’re using money you don’t really own). In other words, leveraging magnifies both gains and losses.

Put Options

Certain specialized exchanges, such as BitMEX, offer Bitcoin options trading. Purchase of an option grants the ability, but not the obligation, to trade at a specific price by certain expiry date.

If you have experience with options trading this method might suit you, otherwise it’s not recommended for beginners. Options are complex but do allow for greater flexibility and higher leverage.

3. When Should You Short Sell?

Shorting Bitcoin is trading against a long-term uptrend; the longer you the trend remains, the riskier this becomes. One thing to remember – the maximum profit potential of a short is limited to a Bitcoin price of 0, whereas buyers have no limit on their profit.

If you examine Bitcoin price charts, you’ll soon realize the truth of the old trading aphorism, “price takes the stairs up but the elevator down.” Whereas bullish moves take time to build and develop, bearish moves tend to be relatively short and sharp.

Analyzing the market for Short Sell Opportunities

Beyond technical analysis, it helps to know the Bitcoin space well. For reference here are different types of events and how they affected Bitcoin’s price.

Past events that triggered major sell-offs Failure of major exchanges. Hostile regulatory action in major countries (eg. “China bans Bitcoin” fake news, SEC clamps down on ICOs). Well-known developers quitting the Bitcoin development team (eg. Mike Hearn, Gavin Andresen).

4. The Risks of Shorting Bitcoin

I should warn you that short-selling any asset is a high-risk venture. Normally, when you invest in an asset your losses are limited to the amount of money you have invested in that asset.

For example, if you invest $10,000 dollars in a stock, and that stock suddenly collapses and becomes worthless, your losses will be limited to the $10,000 dollars you invested.

5. Conclusion – Should You Short Bitcoin?

Shorting Bitcoin is a great but risky way to make money. Through the act of borrowing Bitcoins, selling them when the price is high, and then buying them back when the price is low, you can earn money even when markets are bleeding.

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. Also, make sure to stay up to date with current related events so you can anticipate any change in the price direction.