The Big Crypto Short
Most already know what shorting is but let’s refresh some concepts from the get go. Short selling basically means taking a loan to buy an asset just to sell it right after. As the asset goes down in price, you will be making money. If the asset increases you would be losing money, on top of paying high interest rates for the loan you just took. Shorting is a common and effective strategy in traditional markets — where volatility is much lower — either as a portfolio hedge tool or as part of technical and fundamental analysis. In the crypto market, risk, gains and losses, while similar in theory, can prove to be exponential in practice.
Let’s explore the dangerous yet possible rewarding world of short selling crypto assets.
The Art Of ‘Getting Rekkt’
The year of 2017 was sweet for many, but not all traders. Take this now infamous in particular of a Reddit user who tried to short Dash, with let’s say, rather ineffective results. These stories abound as cryptocurrencies are prone not only to inside manipulation but unexpected technical difficulties and external and unclear pressure from regulators just to name a few. The mere act of shorting an asset (without taking proper measures) is risky by itself, but the ones making the move will find a range of unique hazards that come with the territory and which many thought already extinct. These include but are not limited to ‘stop hunting’, ‘wash trading’, ‘fake buy/sell walls’ and while they not inherent to the crypto market, they tend to be more common and appearing in a much larger scale. The consequence is that many assets have a very high, almost unimaginable ceilings, due to lack of liquidity to single out just one factor, while still having high floors, as even the most blatant ‘scams’ take their time on their way to the bottom when the tides turn.
This murky landscape keeps a lot of traditional actors and deniers of these assets away from fully entering the market and finally putting their ‘money where their mouth is’ as many on the other side of the fence continue to request.
The Opposite Of HODLing
Many of these non-believers continue to state that cryptocurrencies lack inherent value and therefore their true price must be zero, or close to it. While many maintaining this stance start to look like caricatures at this point with ten years of evidence to the contrary, their argument does hold good points if we consider the long list of black swan events that still haunt most projects in the industry like a nightmarish game of crypto Jenga. Common examples range from possible stablecoins implosion and constant regulatory pressure to quantum computers and smart contract failure.
Months ago we covered the benefits of exposure to a different range of assets other than Bitcoin over the long haul. However, the argument remains valid if we quickly change perspectives. Only a handful of past Top 25 cryptocurrencies from 2014 remain relevant five years later, which only reinforces the point that just Bitcoin and possible a handful of others — sometimes even temporarily — can be considered truly legitimate projects. And it goes without saying that we are just focusing on the tip of the iceberg here. Most of the rest as we all now is often accused of being comprised of borderline scams, or very doubtful and impossible to attain cash grab projects at best.
Perhaps the time has come for an investment vehicle that could be both less expensive and risky yet at the same time easy and fast enough to be implemented by of most beginner and experienced traders alike needing to rebalance and de-risk their portfolios on the fly…
