Bitcoin was founded in 2009, by 2013 it had crossed the $1000 mark. Because of its rapid growth, it gained a lot of attention from all over the world. So, it’s been more than a decade since we have had Bitcoin with us. That gives us a lot of technical data about its price movement, volume, volatility, etc. Now that we have all that data, technical analysts and many other marketeers are looking for options to trade on Bitcoins. We are all aware that buying Bitcoin is a simple process, but the better question is can we short sell a Bitcoin, a Crypto Currency?
A one-word answer to that question is “YES”, you can short sell Bitcoins and most other Cryptocurrencies. You would be “speculating” in the Crypto Markets, which can be either highly disastrous or highly rewarding. The volatile nature of the market is the one to blame.
Easiest ways to short sell Bitcoin:
1) Crypto Exchanges
a) Basic method to Short sell Bitcoin
The most common way to short sell Bitcoin is through Crypto Exchanges. The exchange loans you the coins to sell. Hoping you will return the coins they gave you. When you close the short trade and if the price has fallen, you will have to incur a loss. It could be huge because there is no limit to the amount of losses one can incur when shorting a commodity like Bitcoin. When you buy a Bitcoin your losses are limited to the amount you put there (Zero is the limit for a buyer). On the other hand, when you sell a bitcoin, you incur losses as prices increases, and there’s no upper limit on a commodity like Bitcoin. A few exchanges that allow short trading on their platforms are Bitmex, ByBit, Binance Futures, Bitfinex, FTX, and Kraken.
Let me explain this with an example: Say you shorted 100 BTC at 1000$ (Amount used-$100,000), and in a week or a month, its price jumps up to $10,000. Now in this situation, you are liable to pay $900,000 (Invested amount * Increase in Price) which is 9 times the amount you put in for the trade.
b) Short selling Bitcoins on leverage
There are many Exchanges that offer leverage on shorting too. “Leverage” here means shorting with the amount you don’t have. You sell the shares on margin which means you pay only a percentage of the price of each coin. This is even more riskier as it multiplies the risk along with the rewards. It is recommended for very-very experienced traders who understand the risk they would be taking.
Example of Trading with leverage: Let’s say some exchange offers leverage of 1:3. This would mean if a bitcoin is available at $1000, then with $1000 one can get 3BTC (Worth $3000). Now if the price of Bitcoin jumps 20% to $1200, you would be in a loss of $200 * 3BTC = $600.
c) Options Trading
Some Exchanges provide the option of taking the Options Trade too. In a put Options Trade, you are not obligated to pay the amount in the future which certainly reduces the risk involved. But the trades are a little more complex than the above-mentioned shorting technique. Therefore, only an experienced trader should do Option Trading with Bitcoins.
2) Short Sell Bitcoin through CFD’s
Another way of shorting Bitcoins is through CFD’s(Contract For Difference). It removes a lot of unnecessary steps involved in shorting through an exchange. Here, you don’t have to take Bitcoins on loan before selling them. Nor do you have to buy them back to book your profits. With CFD’s you simply agree to pay the difference between the current value of the Coin and its value during the contract time. The profit or loss you make in your trade is the only money involved in CFDs. These contracts involve the same amount of risk as when shorting through exchanges. Just the quantum of your trade is reduced making it easier for all the parties involved.
Bitcoin is the most valued and the oldest cryptocurrency on the planet. Therefore people are finally starting to believe the fact that Cryptocurrencies might be the future. But until the time such currencies are out of the controversies, controversies like the big nations that are trying to ban them and the environmental concerns about mining. Before all of these problems are resolved and the concerns regarding them are properly addressed, trading on Bitcoin or any Cryptocurrency in this regard is nothing more than “pure speculation”.
A lot of politics, power, and cyber threats are involved in this commodity, and yet, some traders like to trade on their gut, which sometimes works for them and helps them come out ahead in the game. But watching others and burning your own hard-earned money in something that you don’t understand wouldn’t be a great idea. So self-research and proper knowledge are extremely important before getting involved in this commodity.