How to Short Bitcoin and Other Crypto



The cryptocurrency market is very volatile because the Bitcoin-dollar exchange rate and the altcoin value can change many times during the day: first, it goes up, and then it goes down. Then the fall is followed by another rise, and so on from day to day. Just like in traditional financial exchanges, crypto traders use different models of behavior. One of the most popular is the strategy of making money on falling rates. For this reason, searches for "how do you short Bitcoin" are becoming increasingly popular.

How Can You Short Cryptocurrency

Short is the sale of any asset - securities, cryptocurrency, or other assets that the trader does not own at the moment, borrowing them from a broker.

How does shorting crypto work? The trader opens a short position hoping to make a profit on the falling value of the asset. In this case, he is said to be "playing short" or "shorting". Market participants who open deals of this type are called "bear traders". A bear market means a downward trend in the cryptocurrency market.

How do you short a crypto? Suppose you borrowed 100 coins of some cryptocurrency from your broker and sold them at once. For example, the price was $30. After some time the rate of those coins went down to $15, and you bought the same 100 coins and returned them to the owner - the broker. You keep the difference between the selling price and the buying price. That would be your profit.

Shorting crypto meaning - a strategy that a trader uses to profit from falling prices on the market. As mentioned above, the cryptocurrency market is considered to be one of the most volatile markets, so playing shorting is one of the most popular strategies. After all, it helps to profit from a fall in the price of a particular asset. On the one hand, this is a disadvantage for investors, on the other hand, traders make money this way.

Why Longing or Shorting Cryptocurrencies?

Before we continue talking about how to short cryptocurrencies, let's understand why we should use such strategies for cryptocurrencies at all.

Both long and short are popular strategies for trading cryptocurrencies. And if we have already explained the concept of a short, a long is its opposite. An investor opens a long position when he buys a cryptocurrency, expecting it to rise in price. As long as the investor holds it, he is said to be "holding a long position". By selling the cryptocurrency, the investor is closing the long position. The profit is the difference between the purchase and sale prices.  With a long position, you can make a profit if you invest over a long period of time. If the asset falls in price, sooner or later the cryptocurrency will rise, you just have to wait for that moment.

But why do we need strategies at all?

Following clear rules of trading strategy is what makes a trader a professional and allows them to earn stable money in financial markets. It is the most important moment in the career of a successful trader. Without having a trading strategy you will inevitably lose your deposit and quit the market. It is the trading strategy and discipline that keeps trading from turning into a gamble.

Often beginners do not understand how important it is to trade according to the plan and start working on the market without any strategy or even understanding what is shorting Bitcoin. It is impossible to earn on financial markets without a systematic approach and it was proven a long time ago.

How to Short Bitcoin?

In order to make a profit and not lose your funds, when trading on cryptocurrency exchanges, open a shorting bitcoin in the following list of actions:

  1. The trader borrows the number of Bitcoins he needs from the broker.
  2. Next, he sells Bitcoins at the value set by the trading platform.
  3. In the next step, the trader waits for the time when the Bitcoin price will fall.
  4. When the trader reaches an advantageous point, he closes and buys the Bitcoins that have fallen in price.
  5. Gets them back to the broker and profits from the difference in value.  

If you have chosen correctly the moment of buying and selling, then from one transaction you will be able to pay back your debt to the broker and pay the commission, and the remaining funds will be your net profit. Now you know how can you short Bitcoin.

What Makes a Good Short Strategy?

A falling market is almost always an unfavorable time for trading, and shorting is the strategy that can be used to make money in it. Beyond that, there are several other things that make this strategy profitable:

  • Fast and big returns. Shorting allows you to make good money in a very short period of time. As already mentioned, this very nuance is decisive for most traders. So many are ready to take risks for the sake of a good income.
  • Great choice of assets. Despite the fact that the search for a suitable cryptocurrency may take time, in fact, there is always some cryptocurrency that is currently showing a downtrend. As a result, as soon as the cryptocurrency with which the trader is currently working begins to grow, you can immediately find another one that has started to fall.
  • You can start with a small amount. With this approach, the income will be minimal, as mentioned above, but you can practice without risking a lot of money. Unlike long-term trading, you can gain necessary experience quickly enough, which will allow you to gain necessary skills quickly and start earning good money.

What are The Risks of Shorting Bitcoin (BTC)?

Opening a short position attracts many traders who want to make a quick profit. But shorting a position carries many risks. And you can make a good profit only on a rapid decline in prices, which only experienced traders can calculate. In addition, the mass opening of short positions, or playing the short game, can destabilize the financial markets, so the legal restrictions on shorts are periodically introduced.

What are other risks associated with shorting?

The most important is that the trader may incorrectly predict the movement of the asset, and the price will go up, instead of the expected fall. In this case, the trader has to buy the asset at a high price in order to return it to the broker, investing his own money and thus finding himself in the red.

It is also the peculiarities of the volatility of cryptocurrency, especially Bitcoin, that should be taken into account. Unlike the relatively slow, gradual rise in its value, the fall always happens quickly and, for many, unexpectedly. That is why it is important to correctly predict the situation, analyze the market and carefully choose the moments to open transactions.

One should remember that a trader must take into account all possible expenses on shorting. To receive the income, it is necessary to take into account not only the difference between the buying and selling price but also the commissions, the interest on the credit and so on. This may seem complicated to first-time users.

Another risk comes from the nature of the market itself, as the vast majority of cryptocurrencies are rising in the long run. And opening "short" positions is always theoretically fundamentally dangerous. It is like standing up against the movement of a train.

How to Sell Short?

As we mentioned before, the principle of Bitcoin short selling is the following: you borrow Bitcoin, sell it at a current price, and sometime after it falls, you buy it and give it back to the owner. The difference in price will be your profit.

How to short sell Bitcoin? Let us analyze it with the next example.

Suppose you find out that in the near future the Bitcoin rate will go down sharply. You go to your favorite exchanger and write to your broker that you wish to lend 5 Bitcoins for $40,000 per coin. Of course, the figures are just for illustration only and have nothing to do with the real Bitcoin rate.  

The broker agrees to the deal with the condition that he will take an additional commission for you using his Bitcoins.

Then the Bitcoin price falls from $40,000 to $39,000 and you decide that this difference in amount will be enough for you and close your short position. If you close it the same day, there will probably be no additional brokerage fee. This is the process of how to short sell crypto.

Let's explain it with some calculations:

5*$40000=$200000 (Bitcoin value at the moment of borrowing).

5*$39000=$195000 (the Bitcoin's value after the fall of its rate).

$200000-$195000=$5000 (our notional profit).

We ended up with five thousand dollars literally out of thin air. This is the answer to the frequent question "what does it mean to short Bitcoin".

Why Could Short Selling BTC Be Bad?

There are several ways in which shorting Bitcoin might not be profitable, and both of them have to do with price.

The volatility of Bitcoin, like any other cryptocurrency, is very high, but Bitcoin at certain moments may shows significant growth and practically does not fall. A similar situation was a few years ago when Bitcoin's growth was rapid and its falls were very short and so insignificant that it was unprofitable and simply dangerous to short them.

Another scenario is that Bitcoin starts to decline, but not as low as analysts had planned. Shorting under such conditions makes no sense either because the commission could be much higher than the profit.

How Do I Get Started?

You may consider that you've got the theory figured out, and there is nothing complicated about starting to short. Next, you need to decide where can you short Bitcoin. The primary factor that your success depends on is still the choice of a cryptocurrency exchange. It should be the most convenient platform with a big variability of trading pairs, different types of assets, big audience coverage, and much more. So, choose the exchange carefully in order not to make a mistake.

Once you have decided which exchange where to short crypto, it is important to determine the moment when your chosen cryptocurrency, for example, Bitcoin, will go down. Monitor the news, ask your financial advisor, look at the charts or use technical analysis - there are really many options to determine the price movement.

Already after these actions are done, you can open a short trade to make a profit. Despite the fact that the mechanism of opening a short position can be difficult for you, at the moment in exchange brokers' terminals this operation is very simple and extremely fast. The mechanism for obtaining credit in the form of a certain amount of cryptocurrency is most often implemented at a fully automatic level.

Therefore, in order to open a short position on the stock, you just need to make a deal to sell, for example, Bitcoin, even though you currently do not have it. The Bitcoin will be automatically credited by your broker first, and then sold on the market immediately.

What else should someone who is planning to start shorting keep in mind?

  • First of all, you should understand that any cryptocurrency may sooner or later start to fall in price. This is a completely normal phenomenon, which you can use for your own interests. Below is a small list of tips and rules to follow:
  • You should absolutely know that shorting with insufficient knowledge of trading is an extremely bad idea, especially when it comes to little-known altcoins.
  • You should not take your shorts too long and keep the trade open for a long time, as this can lead to a gradual but sure loss of funds.
  • If you do decide to short, we recommend doing so only if you see a drop in fairly large cryptocurrencies - Bitcoin, Lightcoin, Etherium, and a few other equally popular ones. The difference in a drop in their price can be significant and make a big profit.
  • Also, before you go short, make sure you understand the basics of shorting. At a minimum, you must understand what does short mean in crypto.

Shorting cryptocurrencies is an interesting but risky trading system, which can give you a good return quickly. The system requires prior learning and even experienced traders can have problems and losses. Nevertheless, shorting is very popular and is actively used by traders around the world.

If you decide to try and open a short position, then do not forget to hedge yourself - do not borrow too much from your broker, determine what risks you are willing to take and how much you are prepared to lose in case of failure.


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