2022 was an absolute bloodbath for cryptocurrencies. Many well-known altcoins were decimated, with most cryptocurrencies down over 75% from their all-time highs. With the markets in a free-fall, you may want to know how to short bitcoin.
Bitcoin (BTC) hasn’t been able to take advantage of the influx in participation felt through the rest of the altcoin market. Without being a platform for NFTs and DeFi, smart contract blockchains may continue to take market share from the world’s 1st crypto project.
With that said, Bitcoin has a habit of bucking the trend line — so watch out if you plan to bet against this behemoth in the crypto space. But if you think you’ve got Bitcoin’s number, there’s more than 1 way to put your crypto to work. The following guide will show you step-by-step how to short Bitcoin.
What Is Margin Trading?
If you’re going to short Bitcoin, you need a basic knowledge of derivatives. Derivatives, including margin and leverage trading, are complex financial instruments being offered on a growing number of crypto trading platforms.
To put it simply, margin trading is the act of taking on debt to invest in cryptocurrencies. Generally, the cryptocurrencies purchased with this debt would become collateral for the loan in question. While risky, experienced traders often use margin trading to maximize their starting capital, and potentially — their profits.
Here's how it works: traders deposit funds with a broker for collateral. In turn, the broker lends the trader a specific amount of money, which can be used to purchase cryptocurrency. If the value of the crypto increases, the crypto can be sold for profit. However, if the value of the crypto decreases, the trader may be required to deposit additional funds with the broker to maintain the required collateral level, or they may be forced to sell the securities and pay back the borrowed funds.
Cryptocurrency Leverage Trading Regulation
In general, derivatives trading is restricted for U.S. customers. Leverage trading is no exception. With the U.S. refusing to license cryptocurrency exchanges offering derivative instruments, popular platforms like Kraken and Coinbase Pro have been forced to discontinue their margin and leverage services.
Risks Involved With Leverage Trading
The risks involved with leverage trading increase alongside the potential for returns. This is because you can lose more money than you have invested. A high stakes gamble, applying leverage to your trades is not for the faint of heart — if your trade doesn’t play out the way you expected, the losses can be catastrophic.
Another risk of leverage is that you may be exposed to higher volatility. This is because by borrowing funds to increase your investment, the value of your securities may fluctuate more dramatically than they would if you had only invested your own money.
For this reason, leverage trading is generally only recommended for experienced traders. For these confident investors, however, leverage trading can be a rewarding practice. The decision to participate in derivatives trading depends on your own experience and comfort with the associated risk.
Is Bitcoin in a Bear Market?
Whether or not Bitcoin can break through its current resistance and stun the world with another terrific price increase is yet to be seen. Some suggest another leg down may be in order before Bitcoin experiences further gains.
Despite Bitcoin’s disappointing near-term indicators, many astute investors still assert that the coin could see $100,000 by the end of 2024 or in early 2025 due to speculation surrounding the next halving event in 2024. In this way, Bitcoin could be in both — a bull and a bear market. While we're in a short-term bear market, the macro trend for Bitcoin is still arguably in a bull market. And if you know how to play it, you can profit on either side of the run. In the following section, this guide will walk you step by step through the process of shorting Bitcoin.
How to Short Bitcoin
While the decision to engage in derivatives trading shouldn’t be taken lightly, shorting Bitcoin is actually not too difficult a task. If you’ve decided you’d like to short Bitcoin but aren’t exactly sure where to start, the following step-by-step guide was created with you in mind:
- Open a cryptocurrency exchange account.
The 1st thing you’ll need to do is open an account with a reputable exchange that offers the derivative services you’re looking for. Both Bybit and FTX offer fantastic opportunities to short Bitcoin. With state-of-the-art security and advanced tools for experienced traders, Bybit and FTX represent world-class trading platforms with the options you’ll need to get the job done.
- Fund your account.
The next step is to fund your account. While you should be able to connect your bank account to the exchange, you may want to transfer Bitcoin from another exchange or wallet. With your account funded, you’re ready for the next step.
- Choose your leverage.
An important step in shorting Bitcoin is choosing your leverage. Often expressed as a multiplier, your leverage defines the potential return on your investment. FTX offers a number of leveraged tokens for you to choose from.
When choosing leverage, it pays to consider the risks involved. Choosing higher leverage increases your potential earnings but also multiplies your losses should your bet not play out the way you intended. When you’ve decided on the level of risk you’re comfortable with, you’re ready to enter your short position.
- Enter your short position.
You’re finally ready to enter your short position. Because you’re betting the price will go down, you need to set your stop-loss and target price accordingly. You also need to indicate the amount of collateral (usually in Bitcoin or USD) you are willing to put up.
With your short position entered, you’re ready to accept the transaction. Go ahead and click the sell button. Welcome to the exciting world of derivatives trading!
Where to Short Bitcoin
The 2 best places to short Bitcoin are FTX Exchange and ByBit. However, if your computer's IP address is located in the United States, it's unlikely that you'll be able to create an account.
Cryptocurrency Price Movements
Bitcoin dominance is sitting around 44% at the time of writing and is trending lower as the market turns toward smart contract platforms in the altcoin space. After reclaiming all-time highs near the end of 2021, Bitcoin is now down significantly at the start of 2022. For the most up-to-date pricing, check out our table below.
Ethereum (ETH) broke down from support around $3,000 and is trading lower as of January 2022. Tracking the prices of Ethereum and Bitcoin can give you a good indicator of the general market sentiment for cryptocurrencies.
Alternative Ways to Short Bitcoin
While Bybit and FTX are fantastic options for the task, you don’t necessarily need to open an account on an exchange to short bitcoin. A number of DeFi tokens are available to help you short Bitcoin just by holding them.
Uniswap (UNI) carries leverage tokens, like 3X Short Uniswap Bear (UNISWAPBEAR), that rise in value when the token falls. These tokens can be swapped for ETH on the decentralized exchange (DEX).
Where to Buy Cryptocurrency
If you need ETH to swap for that 3X Short token, you’re still going to need to buy it on an exchange. Luckily, some fantastic trading platforms are available for today’s investor.
Coinbase (NASDAQ: COIN), Gemini and Voyager offer state-of-the-art security, so you can rest comfortably knowing your assets are safe. Advanced tools for experienced traders and even staking for interest are available. Ultimately, the services offered between these trading platforms remain unrivaled in the crypto space.
- securely through Coinbase's websiteBest For:Coinbase Learn
Sum of median estimated savings and rewards earned, per user in 2021 across multiple Coinbase programs (excluding sweepstakes). This amount includes fee waivers from Coinbase One (excluding the subscription cost), rewards from Coinbase Card, and staking rewards. ³Crypto rewards is an optional Coinbase offer. Upon purchase of USDC, you will be automatically opted in to rewards. If you’d like to opt out or learn more about rewards, you can click here. The rewards rate is subject to change and can vary by region. Customers will be able to see the latest applicable rates directly within their accounts.
- securely through eToro's websiteBest For:Demo Accounts
Cryptocurrency is offered by eToro USA LLC (“the MSB”) (NMLS: 1769299) and is not FDIC or SIPC insured. Investing involves risk
Don’t invest unless you’re prepared to lose all the money you invest. This is a high-risk investment and you should not expect to be protected if something goes wrong. Take 2 mins to learn more
Is Shorting Bitcoin Worth it?
When the market moves, traders need the tools necessary to profit from whichever direction it takes. No one should suffer through a sharp price decline if they saw it coming beforehand. For experienced traders, shorting Bitcoin can be well worth the effort — and the gains can be incredible.
But shorting Bitcoin is an incredibly risky proposition. And in the long term, this crypto giant will likely exceed the expectations of speculators with gains of its own. As such, holding Bitcoin long term may be a better investment strategy. One thing is certain. When Bitcoin finally decides to move, the losses incurred from an uneducated bet against it could be devastating.
The choice to short Bitcoin will ultimately come down to your own level of comfort in the markets. While leverage trading is probably best left to experienced investors, the options and tools are readily available for everyone to participate. Welcome to financial sovereignty.
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