5 Ways to Short Bitcoin

5 Ways to Short Bitcoin



While bitcoin and other cryptocurrencies have made astronomical gains so far this year, up more than 1,400% in 2017, that hasn't stopped many investors from remaining skeptical about the long-term strength of the industry. In fact, as prices climbed higher and higher, crossing big price milestones very quickly, some analysts predicted that a bubble pop is approaching. For those investors who believe that bitcoin is likely to crash at some point in the future, shorting the currency might be a good option. Here are some ways that you can go about doing that.



Margin Trading

One of the easiest ways to short bitcoin is through a cryptocurrency margin trading platform. Many exchanges allow this type of trading, with margin trades allowing for investors to "borrow" money from a broker in order to make a trade. It's important to remember that there may be a leverage factor, which could either increase your profits or your losses. Many Bitcoin exchanges allow margin trading at this stage, with BitMex, AVAtrade, and Plus500 as some popular options.



Futures Market

Bitcoin, like other assets, has a futures market. In a futures trade, a buyer agrees to purchase a security with a contract which specifies when and at what price the security will be sold. If you buy a futures contract, you're likely to feel that the price of the security will rise; this ensures that you can get a good deal on the security later on. However, if you sell a futures contract, it suggests a bearish mindset and a prediction that bitcoin will decline in price. According to the Merkle, "selling futures contracts is an excellent way to short bitcoin." Futures markets are somewhat more difficult to find, but OrderBook.net has been known as a place to buy and sell bitcoin futures.



Binary Options Trading

Call and put options also allow people to short bitcoin. If you wish to short the currency, you'd execute a put order, probably with an escrow service. This means that you would be aiming to be able to sell the currency at today's price, even if the price drops later on. Binary options are available through a number of offshore exchanges, but the costs (and risks) are high.



Prediction Markets

Prediction markets are another way to consider shorting bitcoin. They have not been around in the cryptocurrency world for long, but they can nonetheless be an asset for shorting currencies like bitcoin. These markets allow for investors to create an event make a wager based on the outcome. You could, therefore, predict that bitcoin would decline by a certain margin or percentage, and if anyone takes you up on the bet, you'd stand to profit if it comes to pass. Predictious is one example of a prediction market for bitcoin.



Short-Selling Bitcoin Assets

While this might not appeal to all investors, those interested in buying and selling actual bitcoin could short-sell the currency directly. Sell off tokens at a price that you are comfortable with, wait until the price drops, and then buy tokens again. Of course, if the price does not adjust as you expect, you could also either lose money or lose bitcoin assets in the process.

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