How To Short Crypto? 7 Ways To Know - Coin Amazon
Crypto Knowledge

How To Short Crypto? 7 Ways To Know - Coin Amazon

written by John Murphy | February 10, 2023

Cryptocurrency is a volatile beast. Hence traders invest with the hope of making profits when the price increase. However, this may go the other way as well. Thus, learning how to short crypto becomes a key ingredient for long-term success.

In simple words, shorting is borrowing a crypto like Bitcoin or Ethereum with the hope that its price will fall and you sell it in the market. In contrast, you purchase back the same crypto once its price falls and make a profit from a difference between your buying and selling costs.

Moreover, the shorting strategy is risky but could be a good option if you consider a particular cryptocurrency to crash in the future. 

Since the crypto market cap has increased significantly over the past decade, thus learning is an art each investor must target.

We will walk you through different ways to short. So, let us start!

Ways To Short Crypto

The following the several methods to short cryptocurrency during trading.

  • Futures Market

Since the crypto market is highly volatile, thus it becomes ideal for futures trading. A buyer agrees to buy an underlying asset at a predefined in the future. The idea is to make money by hoping thatthe price will rise. Hence, an investor is betting that the asset’s price will rise, and he will pocket profit by triggering his today’s low-price contract.

Moreover, almost all major exchanges are offering future trading. Hence, you can short crypto at Chicago Mercantile Exchange (CME), Kraken, eToro, BitMEX and other famous platforms.

  • Margin Trading

Margin trading is borrowing money from a broker. However, margin involves leverage or borrowed money, which can exacerbate losses or increase profits. Hence, margin trading is one of the easiest and most used ways of shorting.

Currently, many exchanges facilitate margin trading, for instance, Kraken and Binance.

  • Short-Selling

Although short-selling is risky, many investors have successfully reaped the rewards by carefully applying them. Sell cryptocurrency at a price you feel comfortable with, wait for the price to drop, and then purchase again at a lower price. However, the investor may lose money if the price does not drop as per your expectations.

Short-selling is usually associated with volatile cryptocurrency and is relatively new to crypto trading. Thus only a handful of brokers are allowing short-selling. 

  • Binary Options Trading

Call and Put options have emerged as another popular way too short crypto. Investors can easily short with a put order through an escrow service. Thus, you can sell cryptocurrency today even if its price drops in the future.

Binary options are available on platforms like Deribit and OKEx. However, it is a risky strategy and needs proper homework.

  • Prediction Markets

Prediction markets work on the betting format, where you can apply the short strategy. Such markets work on the same rules as traditional markets. Investors create an event to make a wager based on the result.

Therefore, you can predict that certain crypto will decline by a certain margin, and if anyone takes you up on the bet, you can earn a profit if it comes true. Numerous platforms are engaged in the predictions market, for example, Augur, Polymarket and GnosisDAO.

  • Crypto CFDs

A contract of differences (CFD) pays out money based on price differences between an asset’s opening and closing prices. Since it is a kind of bet, thus it is similar to futures. Hence, you are shorting when you predict its price to decline.

Unlike crypto futures, CFDs have flexible settlement dates. Thus, CFDs are becoming a popular shorting strategy.

  • Inverse Exchange-Traded Products

These are similar to future contracts in conjunction with derivatives to produce profits. Inverse exchange-traded are bets on the price decline of an underlying asset. However, these are not popular among investors due to a lack of options.

U.S. residents can involve in inverse exchange-traded products via ProShare’s Short Strategy. In contrast, investors outside the U.S. can invest in BetaPro Bitcoin Inverse ETF (BITI).

Key Factors To Consider While Shorting Crypto

Since the cryptocurrency market is full of surprises, adopting a risky strategy like shorting can fuel risk levels. So, keeping an eye on some key factors is vital to come good with shorting.

  • Always keep an eye on price fluctuation models.
  • Cryptocurrency as an asset is risky.
  • The regulatory status is unclear.
  • First, learn to short crypto.

Frequently Asked Questions

Can I short crypto?

Since the crypto market cap is ever-increasing, numerous advanced-level investment strategies are becoming part of trading. Using futures, an investor can short. Therefore, you can easily short cryptocurrency.

Which crypto exchange allows shorting?

Many famous crypto exchanges are dealing with crypto shorts. A few names include the following.

  • Kraken
  • eToro
  • BitMEX
  • Chicago Mercantile Exchange (CME)

Can I short Bitcoin?

Yes! Investors can easily adopt the shorting strategy for Bitcoin, just like any other cryptocurrency. You can bet on the price of Bitcoin using derivatives like options and futures.

What are the two of the most shorted cryptos?

MicroStrategy and Silvergate were the most shorted crypto stocks during the last year.

What are the best apps to short crypto?

The following are the best apps to short crypto.

  • Kraken
  • Binance
  • Coinbase Pro

Parting Thoughts

How to short crypto is an important tool to learn, especially for advance level investment enthusiasts. As the crypto market reached new highs, investors are using many techniques to maximize their returns, with crypto shorting as the major way.

Futures, options and derivatives are the most used means to short crypto. However, since newbies are not familiar with these terms, it is important to first learn these techniques before applying them in real setups.

However, crypto shorting may earn you some quick returns, but it is risky. That is why many experts advise avoiding short selling. 

Although cryptocurrency is the future of finance, it is highly risky. So, we recommend seeking professional advice and backing your shorting decision with extensive market research. Only then can you pocket profits.

We hope you are now fully familiar with how to short crypto and its components. Please leave your feedback in the comments section and let us know your shorting strategy.