Did you know that Bitcoin’s CoinMarketCap ranking as of September 15, 2022, is #1, with a live market cap of $379,081,431,759? Additionally, the global blockchain market is going to go up, by 2023, to $23.3 billion, and cryptocurrency’s market size will go up, by 2026, to $1087.7 million.
Considering these numbers, you might want to make money by shorting crypto. However, you might feel stressed if you don’t know how to short crypto. How can you do this successfully?
Fortunately, this article will review how to short crypto, including Bitcoin. Then, finally, you can start to short crypto and make more money than ever. Read on to learn more.
What Does Shorting Crypto or Bitcoin Mean?
When you short crypto or Bitcoin, you first sell it at a high price, repurchasing it at a lower price. So even though traders will usually buy their crypto at a low price and then sell it at a higher price, you’ll be doing the opposite when you’re shorting crypto.
You take several steps when you complete the process of getting into a short position. First, you’ll borrow a cryptocurrency and sell it, at the current price, on an exchange.
Second, at a later date, you’ll buy the cryptocurrency. When you do this, you’ll pay back the capital you borrowed. If the price has dropped by then, you’ll make a profit. This profit will be the difference between the buying and selling price of the cryptocurrency. People will often short crypto when they think the value of the cryptocurrency will drop in the future.
It’s important to note that this can be a risky strategy. After all, if the market movement is different than what you expect it to be when you attempt to short, you might have to buy the cryptocurrency at a higher price to repay your broker.
How to Short Crypto
You can use different strategies to short cryptocurrencies, such as Bitcoin. These strategies include futures, margin trading, CFD, binary options, and prediction market. We’ll review each of these now so you can decide if one of them is right for you.
Futures
When you complete a futures trade, you, with a contract, buy security. The agreement will specify what price this security will sell and when it will sell. The idea behind this is that you’ll get a good return on investment, or ROI.
If you purchase a futures contract, you’re betting that the security’s price will go up. However, what if you think the price of a cryptocurrency will drop? In this case, you’d buy contracts that include the bet that a cryptocurrency price will be lower. Then, you agree to sell the contract at a lower price. This strategy can benefit newer traders as it requires a lower investment.
Margin Trading
Supposedly, this is the easiest option for shorting crypto. Many margin trading platform options exist, such as Phemex, FTX, and Binance Futures. When you complete this type of trade, you’ll borrow cryptocurrency from a broker so you can execute a trade.
Margin involves leveraging or borrowing money, meaning that this strategy could increase your losses or gains. Usually, the broker will offer you a specific percentage of the money you can borrow from the crypto exchange that you’ll use for your trading. After a specified number of days, you’ll have to return the borrowed money. In addition to replacing the borrowed money, you’ll have to settle the transaction.
CFD
CFD, or contract for differences, is a financial strategy you can use for shorting. This financial strategy will pay out money. This payout is based on the difference in price between closing and opening prices for settlement. This concept is similar to that of Bitcoin futures because, when using a CFD, you’re betting on the cryptocurrency’s price. In the same way, when you buy a CFD, you’re betting that Bitcoin’s price will fall. So, you’re shorting Bitcoin.
Binary Options
Shorting crypto is also possible through binary options. Binary options are call and put options. This well-known concept involves executing a put order and doing so by using an escrow (or other services) with a specific goal. This specific goal is to sell the cryptocurrency at today’s price, even if, later on, the market price drops. A large number of offshore exchanges offer binary options. However, this involves high risk and cost.
Prediction Market
Finally, there’s the prediction market, which is similar to mainstream markets. You create an event, as a trader, to make a wager based on a specific outcome. In this wager, you’ll predict that the cryptocurrency price will drop (by a certain percentage or margin). If you win this wager, the person who bets against you will owe you money. But, unfortunately, when it comes to the process of shorting, you’re betting that the cryptocurrency’s value will go down.
Need More Information on How To Short Bitcoin?
Now that you’ve learned the basics of how to short crypto, you might yearn for more information. For example, maybe you want to know about other crypto trading strategies or which trading platforms you can use for shorting Bitcoin.
Whatever information you need, we at Byte Federal can help. We’re experts in cryptocurrencies, crypto trading platform options, Bitcoin margin, and more.
We also have many Bitcoin ATMs located throughout the US. To find our Bitcoin ATMs, check out their locations now.
