Interested in profiting from the potential decline of cryptocurrency prices? Shorting crypto, also known as short selling, is a strategy that allows you to profit when the price of a cryptocurrency falls.
In simple terms, shorting crypto involves borrowing the cryptocurrency, selling it at the current market price, and then buying it back at a lower price to return the borrowed amount.
This article will guide you through the process of shorting Bitcoin and other cryptocurrencies, offering insights into how it works and where you can execute these trades.
How does shorting crypto work?
Shorting crypto involves a series of steps that enable traders to profit from falling cryptocurrency prices. The process includes borrowing the cryptocurrency, selling it, waiting for the price to drop, and then buying it back at a lower cost. The difference between the selling and buying prices is the trader’s profit.
How to short Bitcoin?
In order to short Bitcoin, you need to choose a reliable cryptocurrency exchange that offers short-selling options. Then, you need to borrow a certain amount of Bitcoin from the exchange and sell the borrowed amount at the current Bitcoin market price. Continue by monitoring the market closely to identify a suitable time to buy back Bitcoin. When the time is right, buy back the Bitcoin at a lower price. Finally, return the borrowed Bitcoin to the exchange, keeping the profit from the price difference.
It is worth noting that there are multiple ways to profit from negative price movements by Bitcoin and other cryptocurrencies, which we’ll discuss in more detail later in the article. But first, here’s a guide on how to short Bitcoin and other crypto assets using margin trading, which is the most popular approach to shorting crypto.
How to short crypto on Binance?
Binance is a popular cryptocurrency exchange that provides short-selling options – in fact, the platform is ranked as the best crypto margin trading exchange in the market today. To short on Binance:
Step 1: Create an account on Binance
Create an account on Binance and complete the necessary verification
Short crypto on Binance
Step 2: Deposit the required collateral to initiate a short position
Deposit the required collateral, often in USDT or BUSD, to initiate a short position.
Step 3: Borrow the cryptocurrency you wish to short
Continue to borrow the cryptocurrency you wish to short. For the purpose of this guide, we are borrowing and thus shorting BTC.
Step 4: Sell the borrowed cryptocurrency at the current market price
Next, select the BTC/USDT trading pair and sell the borrowed cryptocurrency. We are using the “3x Cross Margin” option, which means that we can borrow an additional $200 worth of USDT on top of the $100 that has been deposited in the margin account as collateral.
Step 5: Repay the borrowed amount to profit from the price differential
Repay the borrowed amount by buying back the cryptocurrency at a lower price, thus profiting from the price difference
How to short crypto on KuCoin?
Another popular trading platform among short traders is KuCoin, which is considered one of the best crypto exchanges in general, not just in terms of short trading. It offers margin trading options with up to 10x leverage for isolated margin accounts. The process of short-selling crypto on KuCoin is virtually the same as on Binance, so you can check the guide above for more information.
Short crypto on KuCoin
How to short crypto on Kraken?
In addition to spot markets, Kraken supports both margin and futures markets. Kraken offers over 100 margin-enabled markets for you to long or short cryptocurrencies with up to 5x leverage. In total, traders can short over 50 different cryptocurrencies on Kraken.
Short crypto on Kraken
6 ways to short Bitcoin: Learn how to profit from negative price moves
There are a few different ways to short Bitcoin. Here are six of the most common methods:
Margin trading is a type of trading that allows you to borrow money from a broker to buy or sell an asset. When you short Bitcoin on maargin, you are essentially borrowing Bitcoin from the broker and selling it immediately. You then hope to buy the Bitcoin back at a lower price in the future and return it to the broker, pocketing the difference.
Margin trading can be a very risky way to short Bitcoin, as you are essentially leveraging your investment. This means that even a small decline in the price of Bitcoin could result in a large loss for you.
Futures contracts are agreements to buy or sell an asset at a predetermined price on a future date. When you short Bitcoin futures, you are essentially betting that the price of Bitcoin will be lower on the future date when the contract expires.
Futures trading is a more sophisticated way to short Bitcoin than margin trading, but it can also be more risky. This is because you are not actually buying or selling Bitcoin, but rather a contract that represents the price of Bitcoin.
Binary options trading
Binary options are a type of derivative that allows you to bet on whether the price of an asset will go up or down in a certain period of time. When you short Bitcoin binary options, you are essentially betting that the price of Bitcoin will go down in the specified period of time.
Crypto options are financial derivatives that give traders and investors the right, but not the obligation, to buy (call option) or sell (put option) a specific cryptocurrency at a predetermined price (strike price). Image source: Binance
Binary options trading is a relatively new way to short Bitcoin, and it can be a very risky proposition. This is because you are essentially gambling on the future price of Bitcoin, and there is no guarantee that you will be correct.
Using Bitcoin CFDs
CFDs (contracts for differences) are a type of derivative that allows you to trade the price of Bitcoin without actually owning it. When you short Bitcoin CFDs, you are essentially betting that the price of Bitcoin will go down.
CFDs are a relatively new way to short Bitcoin, and they can be a more affordable and accessible way to do so than other methods. However, it is important to remember that CFDs are leveraged products, which means that you could lose more money than you invest.
Short-selling Bitcoin assets
Another way to bet against the price of Bitcoin is to spot sell Bitcoin and wait for the price to drop before buying it again. This is probably the easiest way to short BTC, but many investors avoid the trading strategy due to the requirement of parting ways physical Bitcoin.
Shorting crypto FAQs
Can you short crypto?
Yes, you can short various cryptocurrencies, including Bitcoin, by using specialized cryptocurrency exchanges that support short selling.
Can you short crypto on Coinbase?
Yes, you can short on Coinbase, but only through futures trading. Coinbase does not offer margin trading, which is another way to short crypto. To short a cryptocurrency on Coinbase, you will need to open a futures contract. Futures contracts are agreements to buy or sell an asset at a specified price on a specified date. In the case of shorting, you would be agreeing to sell an asset at a specified price on a specified date.
How to short crypto in the United States?
In the United States, you can short crypto by registering and verifying your account on exchanges like Coinbase, Kraken, and others that comply with US regulations.
Which are the best crypto exchanges for shorting Bitcoin?
Some of the best cryptocurrency exchanges for shorting Bitcoin include Binance, Kraken, and KuCoin. It’s essential to consider factors like fees, security, and available trading pairs when choosing an exchange.
How to short a Bitcoin ETF?
There are a few ways to short a Bitcoin ETF. One way is to use a margin trading platform – when you short a Bitcoin ETF using margin trading, you are essentially borrowing Bitcoin from the broker and selling it on the market. If the price of BTC goes down, you will make a profit. However, if the price of Bitcoin goes up, you will lose money. Another way to short a Bitcoin ETF is to use a futures contract, which is an agreement to buy or sell an asset at a specified price on a specified date. In the case of shorting a Bitcoin ETF, you would be agreeing to sell the ETF’s shares at a specified price on a specified date.
The bottom line: Shorting Bitcoin and other cryptos is a high-risk, high-reward investment approach
Shorting crypto can be a potentially profitable strategy, allowing traders to benefit from market downturns. However, it’s important to note that shorting involves significant risks due to the unpredictable nature of cryptocurrency markets. Prices can rise unexpectedly, leading to potential losses. Therefore, it’s crucial to conduct thorough research, use risk management strategies, and only invest what you can afford to lose when shorting Bitcoin and other cryptocurrencies.
If you are just starting out in cryptocurrency trading, then it might be best to avoid short selling to start and instead stick to the spot markets, which are easier to navigate and less risky. For a full overview, check our comprehensive guide on how to invest in cryptocurrency. If you aren’t interested in altcoins and instead want to trade BTC exclusively, check out our guide on how to invest in Bitcoin.