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Shorting it is one of the ways to benefit from its erratic price movements and could potentially lead to massive gains. Bitcoin is the primary cryptocurrency and the most popular, meaning that most crypto products will include this asset. However, short selling is open for other cryptocurrencies using the PrimeXBT platform.
What to consider when shorting Bitcoin
This can occur because there’s no upward limit on the price of Bitcoin. After having entered a short position, traders take a loss if the underlying asset goes up. In this way, an investor who is short how to buy flare token Bitcoin can lose all of their investment quickly if the price doesn’t retreat. This risk can be hedged using a stop-loss, which will automatically close out a trade at a specific price level. There are some financial intermediaries that offer leveraged trading products like spread betting and contracts for difference (CFDs).
How to Short Bitcoin in 2023
Next, we’ll explain the mechanics of shorting with easy-to-follow examples and also introduce some advanced techniques traders use to earn extra gains from BTC downturns. We’ll first look at the basics of taking a position in a market by considering the what is bitcoin and why is the price going up difference between being long on an asset and being short. However, this long-term price appreciation hasn’t happened without sharp drops and several bearish phases along the way. Leveraged tokens represent a basket of perpetual contracts and move based on futures price fluctuations.
- CFDs have a more flexible settlement tenure than Bitcoin futures, which have predetermined settlement dates.
- Therefore, short Bitcoin when you have confirmed that the market will crash.
- Using futures, a trader can short Bitcoin by buying a contract with a lower Bitcoin price at some point in the future.
- You can find more but less common strategies to short crypto with a little bit of research.
In this context, you can short Bitcoin by purchasing contracts that bet on a lower price. However, shorting can be used as a wise investment method when you feel your investment is at risk. For example, imagine you own $100,000 worth in BTC and the BTC price is going down at an average rate of 20% per month. That means that there’s a good possibility that, in 1 month time, your investment will be worth $80,000. To safeguard your investment, you can open a Short position at a 100x leverage and invest $1,000 which means your short position will now be worth $100,000. If the BTC price continues on its downward trend, then, your Short position will kick in and help you cover those $20,000 in losses.
Again, this isn’t an exact science, and market sentiment can often be wrong. With that in mind, tread carefully when trying to read the minds or moods of the market. Bitcoin’s price history is a rollercoaster, fueling both bulls and bears seeking to make a profit on the price jumps.
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. When engaging in sophisticated trading methods like shorting, it’s a good idea to have a plan going in. Making trades without some kind of strategy or plan is more akin to gambling than serious investing. Then, enter the price you wish to short from, the desired leverage multiple — choose 1x for no leverage — and the amount of BTC you want to short.
Futures market
However, it’s important to know these steps and the process for you to understand how shorting BTC works. There is no ‘perfect set-up’ for short selling, but there are some things to consider when planning your trades. Market volatility and risk management are the most important factors when taking any trade. Only open a position with an exit strategy or stop loss set at an amount you’re willing to risk. To short-sell Bitcoin, you’ll need a trading account and a clearly mapped-out trading strategy.
Can You Make Money Shorting Bitcoin?
When you short an asset, you can lose all your money if the asset continues to rise. We received a significant number of search queries from people wondering, “can I short Bitcoin? ”, eager to consider a stake in the volatile and unpredictable world of Bitcoin’s price action. Bitcoin had just climbed from around $900 in January 2017 to an all-time high of over $20,000 in December 2017. Around the same time the bitcoin spread difference between bitcoin and paypal following year, Bitcoin was hovering at around $4,000. The asset saw a 22x jump in 2017, and then an 80% fall the following year.
Shorting Bitcoin assets in a bearish market results in a reduction in losses rather than an actual positive profit. On the other hand, shorting BTC with CFD Brokers may result in positive profit. These exchanges offer a variety of features, including detailed cryptocurrency charts and the possibility to buy Bitcoin in several ways. Using a cryptocurrency exchange to short Bitcoin is probably the simplest way since you would probably have an account with an exchange anyway. If you want to short Bitcoin, you can do so on a cryptocurrency exchange.
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. With both technical indicators being aligned, bearish crypto traders might argue that we’re due for a short-term pullback before the eventual rally post Bitcoin halving.