If you have developed an interest in Bitcoin, you are far from the only one. Millions of people around the world have gotten into the cryptocurrency space in the last few years, and most of them have come into contact with BTC at some point during that time.
Bitcoin is still the largest, strongest, safest, and most dominant cryptocurrency in the world, and there is no indication that this will change anytime soon.
However, Bitcoin also has flaws, and its volatility is likely one of the biggest ones among them. However, that doesn’t mean that you can’t make a profit by trading it. BTC price tends to move down a lot more than it moves up. As such, buying BTC for the purpose of traditional trading won’t get you very far.
The only other alternatives you have are to invest and HODL or to short Bitcoin.
What Does It Mean To Short Bitcoin
Simply put, shorting Bitcoin is a form of trading, which is much closer to betting than actual trading.
With Bitcoin’s price being extremely volatile — once it starts dropping, it is likely that it will keep dropping for a while, and only see surges from time to time. If you buy it when its price is relatively high, you are doing so in expectation of growth. When it grows, you can sell it and make a profit.
However, what if you bought it and its price started to drop, and then just kept dropping lower and lower? Selling it right away will bring loss, rather than gains. Waiting for a few days will likely make the situation worse.
However, if you decide to short it, you can still make a profit. Shorting is a type of trading where you sell Bitcoin futures contracts. It is a pretty simple concept to grasp — if you believe that BTC price will keep dropping, you can bet that it will have a lower price in the future. If your guess ends up being right, you make a profit.
If your guess about its future price ends up being correct, your gains would be several times higher. However, margin trading also increases the risk of you losing your investment, as you have less room for being wrong.
So, on the one hand, there are magnified rewards. On the other, there is also a much greater risk. This is why margin trading is only meant for the risk-takers who also know what they are doing and can afford to lose their investment if it comes to that.
How To Short Bitcoin
There are several ways in which you can short Bitcoin. Every method requires you to contact either a trading agency, or a platform that offers short-selling services, and place a short sell order.
They will then use their own supply to sell BTC, and you can repay them for doing so in the future. Hopefully, by the time you have to repay them, the BTC price will be lower than it was at the moment of the initial sale.
So, basically, if you short 5 BTC when its price is $10,000 per coin, you get $50,000. If the price drops to, let’s say, $8,000 by the time you have to repay the platform/agency, the same 5 BTC will cost $40,000, and you will have earned $10,000.
1) Shorting Bitcoin futures on CBOE/CME
2) Short Bitcoin CFDs (Contracts for Difference) on retail brokerages
3) Shorting Bitcoin tracker funds
4) Buying Bitcoin put options
5) Short selling on cryptocurrency exchanges
Today, we are interested in the last option, which is short selling on crypto exchanges, and we have come up with three exchanges which are considered to be the best for doing so. Let’s see how you can short Bitcoin on each of them.
1. How To Short Bitcoin On Bitfinex
Provided that you are located in an area supported by Bitfinex and that you have an account within the exchange, opening a short position should be quite simple. In fact, Bitfinex has clear instructions on how to do so, which you can find on their website.
All there is to do is to follow a few short steps:
1) Go to the Bitfinex Trading page, and choose a trading pair you wish to short, and then proceed to the Margin section.
2) Create your order by choosing the type and specifying the amount. You can also specify certain options for margin funding, although this remains optional.
3) Click on ‘Margin Sell’ to place your order, and the system will take care of it automatically.
4) You can close the position with a close button, or simply place Limit Margin Buy order of the same amount of BTC as your order. Once the order is filled, the borrowed funds will be returned to Bitfinex, and your gains/losses will be credited to your wallet balance.
As you can see, the process is mostly automatic and rather simple, and all you really need to do is specify certain aspects and conditions of your order. After that, it all depends oh how the market value of BTC will perform.
2. How To Short Bitcoin On Binance
If you are a Binance user and you wish to short BTC on this exchange, the process is not that simple, since Binance doesn’t actually offer pure shorting. Instead, you can use its relatively new margin trading platform to trade with leverage. Once again, the real issue is whether or not your prediction regarding the price of Bitcoin will be accurate.
So, assuming that you have an account on Binance’s exchange, you should log into it and hover the mouse over your profile icon in the top right corner of the screen. You will see the first two characters of your email address, and once the dropdown menu opens, you will need to click on your email to access the dashboard.
At this point, you should be able to see your account balance, and below ‘Balance Details,’ there should be an option called simply ‘Margin.’
Clicking on it will start the process that will result in the opening of your Binance margin trading account. Just like a regular trading account, it will require you to go through identity verification. Simply follow the instructions, and you should complete the process quickly enough.
Next, you will have to transfer your funds from your regular Binance account to the margin trading account. This is also quite simple, and all you need to do is click on the Wallet tab, then on Margin, and then on Transfer. Choose the coin, enter the desired amount, and click on the yellow button that says ‘Confirm transfer.’
At this point, you will be ready to submit your short order, and use your coins as collateral for borrowing funds. Your new Margin Wallet will calculate the amount that you are allowed to borrow, depending on how much money you have stored within. The rate is fixed at 3:1 (3x), meaning that owning 1 BTC will allow you to borrow an additional 2 BTC, but not more than that.
You will get your borrowed funds, and you will be able to start trading. On the right, you will see the margin level which warns you of the risk level, which will change depending on your total debt towards Binance, and the funds you have in your wallet as collateral.
To start trading, go to the Exchange page, and choose the next tab that says ‘Margin.’ After that, simply trade your coins as usual, and repay your debt after making a profit.
3. How To Short Bitcoin On Bitmex
Finally, we have BitMEX, and if you are interested in using this exchange for shorting BTC, you can do it without a lot of issues. You need to start by creating an account if you don’t already have one, which can be completed quite quickly.
After that, make a deposit in BTC, and you will be ready to start shorting Bitcoin.
Start by selecting the cryptocurrency to invest or that you wish to trade in, which is going to be Bitcoin. Next, there are different types of futures trading options, but you should make sure that you have Perpetual selected, which should be a default option, but it is best to make sure.
After that, it is time to place your order. You can choose between a Market order and a Limit order, and the difference between the two is that Market order will execute your order instantly and automatically at the best buy/sell price, which brings the speed of execution, but it does come at a slightly higher fee than Limit order. The choice is yours, but to save up on fees, you might want to consider selecting the Limit order.
Next, there is the quantity field, which will select the number of contracts you want to include in the transaction. The contracts are presented in USD, where 1 contract represents $1. This is the amount of money that you will be working with, with or without leverage. As mentioned, adding leverage will bring greater gains as you are basically borrowing more funds, although you are exposing yourself to more risk of getting liquidated.
As you can see there are ways to still earn from Bitcoin if you think its price will go down. If you follow our tips here on how to short sell Bitcoin, you can still earn profits.
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