Bitcoin Shorting: Getting Started Guide

People are ca-razy for Bitcoin. The optimism, the excitement, it’s like a digital gold rush. But there’s also a low hum of skeptics that can’t wait to short Bitcoin. Luckily, there’s multiple ways to short for the bears.

Shorting Bitcoin is aggressive given its rocket like trajectory the last year. Short selling has always been a risky way to profit, but in the hands of advanced traders, it is a tactic that can prove very profitable. If you’re set on the short, here’s how to get started.

How to take a short position on Bitcoin

You have multiple options for shorting on Bitcoin:

Cryptocurrency Exchange
Futures
Contract for Difference (CFD)
Margin Trading
Indirectly Shorting Bitcoin

Bitcoin Shorting via Exchange:

The simplest way to short bitcoin is to use a crypto exchange. If you’re familiar with Bitcoin you’ve likely already set up an account at an exchange. GDAX, Kraken and Bitfinex are some prominent exchanges that allow shorting options.

Bitcoin Shorting via Futures:

As of December 10th 2017, you can short Bitcoin through futures trading. The launch of Bitcoin futures has the finance traditionalists interested. With futures trading, there is now a way to engage with Bitcoin through an established process like futures

Bitcoin Shorting via CFD:

If you want to short Bitcoin without actually having to purchase it, go the CFD (Contract for Difference) route which is based on a derivative. Essentially you can enter into a contract with another party speculating on the price of Bitcoin. This method is available at CFD platforms like ThinkMarkets and AvaTrade

Bitcoin Shorting via. Margin Trading:

You can borrow cryptocurrency from your broker to set a short position using margin trading. There is always a collateral requirement in margin trading and that percentage can vary. Bitfinex allows this type of trading and requires 30% equity. This type of trading is already risky in the traditional institution, so implementing it in conjunction with Bitcoin is a bold tactic.

Indirectly Short Bitcoin:

You can also take a more creative route to short bitcoin by betting against exchange traded notes that are plugged in to cryptocurrency like Grayscale Investments Bitcoin Investment Trust (GBTC) or Bitcoin Tracker One. The caveat is that these funds do not always mirror the trajectory of Bitcoin.

Key Things to Consider When Shorting Bitcoin

  1. The fees will be (much) higher to short Bitcoin. Partly because of the volatility and partly because of the phenomenon and popularity of cryptocurrency.
  2. Bitcoin is unlike any other financial asset so applying traditional financial modeling to short cryptocurrency will not be useful.

The inherent risk in all shorting

Shorting anything is riskier than going long. If you buy long the most you can lose is the amount you invested because an asset can’t drop below zero. If you buy short, however, you’re left exposed. An asset can skyrocket and you could lose all your money and even go into debt.

With the volatility and unprecedented spikes of Bitcoin, there really is no telling the risk of buying short on the cryptocurrency. You have to be bold and informed to take a short position on Bitcoin.

However people can and do make money on shorting all the time. If the right strategy is used and with a little bit of luck, you can short Bitcoin to your advantage.


This post was written on behalf of howtoshortbitcoin.io

Brynn is a freelance cryptocurrency, Bitcoin, and blockchain copywriter. For inquiries email brynn@swandive.co.

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