So let’s get you started on how to short cryptocurrencies like Bitcoin and Ethereum, or even Dogecoin.
What is shorting?
- Shorting is simply “betting” on downward price of an asset whether its Bitcoin, Gold or traditional stocks.
- Generally speaking, shorting bitcoin or “going short” is as simple as selling at a high price and re-buying it later at a lower price, pocketing the difference in profit
- From margin trading to prediction markets, investors have various tools to short Bitcoin and increase profits in a downturn.
Short Crypto with Margin Trading
Margin trading is one of the most popular tactics to short cryptocurrencies like Bitcoin and Ethereum. To trade with margin, you borrow the specific crypto as youre placing a trade, then sell it at the current market price. The goal is to re-purchase the asset later at a lower price, which will cover your position and pay back the lender, while also leaving you a profit.
Crypto Futures Trading
Next, futures trading is another popular way to short cryptocurrencies like Bitcoin and Ethereum. In futures markets, investors exchange contracts, which represent the value of specific cryptocurrencies. With futures trading, you are never required to hold the underlying asset.
Instead, you own a detailed contract to purchase or sell the currency at a date in the future. Cryptocurrency futures enable higher returns by allowing you to apply dynamic investment strategies and take advantage of leverage.
You can utilize futures to speculate market direction, which is important to minimize risk.
Put Option Trading
While its a more complex alternative, you can also go short by buying Put Options directly on some crypto exchanges. Options are financial derivatives that give an investor the right but not the obligation to buy or sell a specific asset at a predefined price on a specific date.
For example, if you believed the bitcoin price would have dipped after its all-time-high of 2021, you could have purchased a three-month bitcoin put option on Binance with a strike price of $35,000 (the strike price is the price at which the security can be sold). As the price of Bitcoin dipped below $35,000 at the end of the three-month period, your put option is “in the money” and profitable for you.
Even tho options are for more advanced traders with higher risk tolerance, they continue to offer a low-cost alternative to shorting digital assets.
Cryptocurrency Predictions Markets
Predictions markets enable investors to readily short cryptocurrencies. These exchange-traded markets are used for investing in the outcome of specific events. They rely on decentralized protocols, which execute trades as soon as certain conditions are met.
Leveraging predictions markets, you can produce more accurate forecasts from price movement insights, and promote portfolio scalability. In fact, you can even use these markets to take advantage of alternative forecasting methods.
There are several popular ways to profitably short cryptocurrencies like Ethereum and Bitcoin.
It can be as simple as selling before buying again at a lower price with Broker. There are more options for advanced traders using margin trading with leverage or futures trading, which provides you a contract to buy or sell a digital currency at a later time. One can also try options or prediction markets, which allow you to profit by betting on an asset price without holding it.
“In Short” – no matter your trading level, there’s always a way to profit when prices of crypto assets like Bitcoin and Ethereum fall.