This is how you can bet against Bitcoin
“Bitcoin is a scam.”
“Bitcoin is another version of the tulip bubble.”
“Bitcoin is another version of the 1999 tech bubble, 2007 real estate bubble and the [insert bubble here].”
Crypto can be a polarizing topic. Many people love it and think its revolutionary and will change the world. Other folks can’t stand it and are quite confused that so many smart people are so engaged in something that resembles a “Ponzi scheme.” At Coin Gamma, we like to consider ourselves non-denominational, we welcome crypto believers and crypto non-believers. For the bitcoin bears, why not participate as well? Given the current value of Bitcoin, there can be a ton of wealth if you have the conviction that this market will crash. Here are a few ways you can bet against Bitcoin:
Bitcoin Stance: I like Crypto, but hate Bitcoin
Strategy: Selling Bitcoin Crypto Pairs
This makes sense if you believe in crypto, but do not believe in Bitcoin. Most cryptocurrencies trade against Bitcoin rather than fiat. By purchasing those coins, you are inherently betting that coin will outperform versus Bitcoin. If you are buying IOTA/BTC on Binance, you are buying IOTA and selling BTC. If IOTA stays the same and Bitcoin underperforms, you make money.
Bitcoin Stance: I hate Bitcoin, and I hate Crypto but don’t mind using the crypto exchanges
Suggested Strategy: Going Short Bitcoin
If you aren’t into shorting Bitcoin by buying another coin, you can short Bitcoin outright. With this strategy, you would be selling Bitcoin without owning it. To do this, you would borrow Bitcoin from someone who owns it.
- You short sale (borrow then sell) 5 Bitcoins at $15,000, so you get $75,000 (5 * $15,000) .
- Time passes, Bitcoin Drops to $10,000. You then buy Bitcoin back, so you spend $50,000 (5 * $10,000)
- You pocket $25,000 on this trade minus interest
Of course, you have to pay interest to make this happen. You will pay interest to the Bitcoin holder to do this. This interest rate fluctuates based on how many people want to short bitcoin versus how many people want to offer Bitcoin for borrow. Here is how the rates look on one exchange, Poloniex:
As you can see, there isn’t too much demand from people who want to borrow Bitcoin to short it, but there are a ton of offers from users who want to lend it out. The lowest offer is to borrow at a .0018% daily interest rate, which is marginal. Why is this the case? Shorting Bitcoin can be very risky. Theoretically, Bitcoin can go to zero, so the most you can make is (Price of Bitcoin at Short Sale) * (# of Bitcoin you sell). On the other hand, there is no ceiling for Bitcoin so there is no limit to your losses. Let’s see what happens if Bitcoin goes to $25,000.
- You short sale (borrow then sell) 5 Bitcoins at $15,000, so you get $75,000 (5 * $15,000) .
- Time passes, Bitcoin rises to $25,000. You then buy Bitcoin back, so you spend $125,000 (5 * $25,000)
- You lose $50,000 on this trade.
If you have the stomach for this trade, here are a few exchanges that you can use:
- Poloniex
- Bitfinex
To understand the other side of this trade, check out our article: How to monetize your Bitcoin holdings without selling
Bitcoin Stance: I hate Bitcoin, and I hate Crypto, and I hate the crypto exchanges
Suggested Strategy # 1: Short Bitcoin Futures
Earlier this month, Bitcoin futures went live on the CME and the CBOE. Futures are an easy way to express a bearish sentiment on Bitcoin. Via non-crypto exchanges, you can sell the future contract short. Here is an exchange that allows you to short Bitcoin Futures:
To understand more about futures, check out our article: What are Bitcoin Futures?
Bitcoin Outlook: I hate Bitcoin, and I hate Crypto, and I hate the crypto exchanges
Suggested Strategy #2: Short bitcoin-related stocks
For Bitcoin bears who want to bet against Bitcoin through the stock market, you can short stocks that have Bitcoin exposure.
Here is a list of companies that have Bitcoin or crypto exposure:
- Short the exchanges that carry Bitcoin futures: CME Group or CBOE
- Short the manufacturers that make the chips that are in crypto mining equipment: Advanced Micro Devices (AMD) or Nvidia (NVDA)
- Short the e-commerce or payment platforms that offer Bitcoin as an option: Overstock (OSTK), Square (SQ), or Shopify (SHOP)
- Short public blockchain companies: Riot Blockchain (RIOT) and Longfin Corp (LFIN)
All of these strategies mentioned above can be quite risky but are good options for those who are confident that this crypto mania will come to a crashing halt.
A word to the wise to those who are confident, always remember this famous quote by economist John Maynard Keynes:
“Markets can stay irrational longer than you can stay solvent.”
