Several investors would like to short Bitcoin and are searching for a way to do so. Fortunately for those traders, there are different ways to short Bitcoin (BTC). Depending on their needs, they would be able to choose the option that better suits their needs.
In this guide, we share with you the top 3 ways to short Bitcoin. We also tell you what shorting means and whether Bitcoin will go back up. We will also tell you all the things that you should take into consideration if you want to short Bitcoin now.
What does Shorting Bitcoin Mean?
Bitcoin shorting is a trading activity in which a trader sells BTC at a specific price waiting for the market to fall and re-purchase the BTC at a lower price. In this way, traders can profit from the difference they made when shorting Bitcoin.
Basically, shorting Bitcoin is the opposite of longing Bitcoin. Rather than betting on the price of Bitcoin moving higher, you are betting on the price of Bitcoin moving lower.
Let’s get a shorting Bitcoin example:
Suppose that Bitcoin is being traded at $50,000. You own 1 BTC. If you believe that the market will continue to fall, then you will sell this BTC at $50,000 and re-purchase it at a lower price. You can buy Bitcoin for $30,000. That means that the trader owns 1 BTC + $20,000.
But what happens if you don’t have BTC to sell? You can borrow BTC, wait for the market to fall, and once it falls, you re-purchase BTC and give the funds back to the borrower. In this case, you will get the difference of $20,000 minus a borrowing fee (interest rate).
In the image above, you can see that you could have shorted Bitcoin between $50,000 and $30,000. This also shows that it is not necessary to always catch Bitcoin tops and bottoms in order to short the market. Indeed, it is necessary to understand the trend and wait for the price of the virtual currency to move lower.
But of course, this has many risks, hence, you should make sure that you understand the risks of shorting Bitcoin.
How to Short Bitcoin?
There are different ways to short Bitcoin. Each of these options is a valid one. However, some traders might prefer one of them or would convince them more to use one rather than another. It is up to you to decide how to short Bitcoin.
Perpetual contracts are among the best options for investors to short Bitcoin. The futures market is among the most liquid and reliable solutions for traders to get access to shorting Bitcoin.
Rather than using futures contracts (with a maturity that ranges between 3 to 6 months), perpetual contracts let you short the market in seconds and keep the position open as long as you want. Right now, there are several cryptocurrency exchanges that would let you short Bitcoin with perpetual contracts.
When you use these types of contracts, you will be borrowing funds to short Bitcoin. As you do that, you get rewarded if the market moves lower, but you could get liquidated if the market moves in the other direction (if you use leverage). Make sure that you understand how perpetual contracts work before starting to trade with them with leverage.
For larger investors, it is possible to trade Bitcoin futures using the Chicago Mercantile Exchange (CME).
2. Binary Options
Binary options are also a very useful way to short Bitcoin and to bet on Bitcoin moving lower. In this case, call and put options let traders get exposure to Bitcoin moving lower. In order to short Bitcoin with Binary Options you will have to open a put order.
It is also worth taking into consideration that Binary options are a great way for you to avoid losing a larger amount of funds compared to other solutions such as futures. You will limit your losses to the price paid for the options. Hence, you can short Bitcoin without having to be worried about exposing yourself to very large losses.
All the information shared by UseTheBitcoin is for educational purposes only. We are not financial advisors. Never invest more than what you are able to lose.
3. Spot Market
The spot market is the most popular way to trade Bitcoin after using futures (which are very liquid). The Bitcoin spot market allows users to get access to Bitcoin directly. Users are not trading a derivative, they are buying and selling real BTC.
Hence, if you hold BTC and you believe that the price of the virtual currency is expected to move lower, then you can use the spot market to sell BTC and re-purchase it at a lower price in the future.
If you don’t want to trade with derivatives, you should always consider using the spot market. This can be a good solution for you to get access to the cryptocurrency market and short Bitcoin.
Will Bitcoin Go Back Up?
It is highly possible that Bitcoin will go back up in the long term. However, in the short term, the price of Bitcoin could continue to be traded sideways or even lower. This is why it is important to create a good strategy that takes into consideration this possibility as well.
Let’s divide the possibilities into short-term, mid-term, and long-term.
Will Bitcoin go back up in the short term?
In the short term, Bitcoin’s price increase might not be massive. It can recover from the recent drop below $20,000 but the possibilities of skyrocketing in the short-term are very low. Bitcoin could go as high as $30,000 in the short term, but it might take some more time for it to recover.
Will Bitcoin go back up in the mid-term?
In the mid-term, the market could behave sideways. We could see Bitcoin giving as high as $40,000 and coming back to $20,000. This could be a period of sideways action. If you enter the market in the lower boundary, then you could eventually register some gains. That being said, Bitcoin could continue to fall even further before starting a new bull run.
Will Bitcoin go back up in the long term?
We cannot predict the future, but considering that Bitcoin has recovered from every bear market, there is a large probability of Bitcoin moving higher in the next few years. Indeed, if Bitcoin starts a new bull market, we could see the largest cryptocurrency hit new all-time highs.
This is something that could see new prices for BTC and reaching $70,000, $80,000, $90,000 and even $100,000. But which things should we take into consideration to understand whether Bitcoin will move higher or not?
The macro-economic environment is very important. For example, with interest rates moving lower and investors searching for higher risk, we could see Bitcoin moving towards new highs. Now, if inflation continues to grow and interest rates go even higher, then we could see Bitcoin continuing with its bear market. Fluctuations take place on a daily basis, but we should have a focus on traditional financial markets and also on geopolitical events.