Not all investors in Bitcoin believe its value will continue to rise in the future. Rather, some believe that in the future its value will rapidly decrease or even crash. For those who believe this will happen, shorting the asset is a good option.
There are a number of ways you can, legally, short Bitcoin which we will discuss in more detail below.
Of course, we are not giving investment advice, rather we are only highlighting, pragmatically, the ways you can short Bitcoin. You should only ever invest what you can afford to lose.
We’ll look at seven ways to short Bitcoin in this article, these are:
- Futures Market
- Prediction Markets
- Short-Selling Bitcoin Assets
- Binary Options Trading
- Using Bitcoin CFDs
- Margin Trading
- Using Inverse Exchange-Traded Products
1. Futures Market
Bitcoin has a futures market that can be used to your advantage if you think its value will go down one day. In a futures market trade, a buyer purchases a security with a contract knowing that it has specified at what price and when the security will be sold.
Buying a futures contract means you are essentially betting that the price of the security will go up, therefore, you’ll be able to profit from it later.
Selling a futures contract means you think the security will go down in price and you want to make a profit now before you think you’ll start losing money. So, in this case, you can buy contracts for Bitcoin that specify the value will lower by a certain time period.
Many people engage in the futures market for Bitcoin and several platforms enable it, including:
- Chicago Mercantile Exchange
- TD Ameritrade
2. Prediction Markets
Another option for shorting is with prediction markets. The prediction markets work in much the same way they do on non-crypto markets. You create a bet, for example, you wager that Bitcoin will decrease by 10% by the end of the month. Then, if someone else agrees to the bet and your prediction comes true, you win money from the other participant.
These kinds of bets are like the bets you have with your friends in real life, except they are done between strangers on platforms including:
3. Short-Selling Bitcoin Assets
This option involves a lot of risks and while the reward can be high, most investors avoid it and stick to more “sensible” options.
For this option, you sell off your Bitcoin at a price you are happy with. Then, you wait for the price to drop, and buy Bitcoin back again.
However, if the price doesn’t go down, then you will have to pay more than you sold your Bitcoin for in order to be an owner again. Or, since you don’t want to pay a higher price, you’ll never own Bitcoin again and miss out on any price increases that others are benefiting from.
Given how volatile Bitcoin is, this plan involves a big leap of faith. It all depends on whether you think the risk is worth the reward.
4. Binary Options Trading
The fourth way you can short Bitcoin is by using call and put options. You just need to use an escrow service to execute a put order, so you can see the crypto at today’s price even if the price goes down in the future.
However, again, if it doesn’t go down in the future, then you will miss out on the difference in profit of the future price.
On the other hand, this option carries much less risk than the future’s market, for example, and you have more control over the losses you may experience.
5. Using Bitcoin CFDs
CFD stands for ‘contract for differences’. This is a strategy that pays out money based on the price differences between the open and closing prices for settlement. These contracts for differences are like futures in the sense that you are betting on the future price of the crypto.
When you buy a CFD that predicts a future decline, you are shorting the currency.
However, one big difference is that futures have an end date that is predetermined. Whereas CFDs are more flexible on the settlement date, nor do you have to pay for custody charges.
6. Margin Trading
Margin trading is probably the easiest option of them all. But again, just because it’s easy, it doesn’t mean you will profit. As with all the other options, it still comes with risk.
However, if you are interested in margin trading to short Bitcoin, you can do so through any margin trading platform. A lot of exchanges and brokerages already have this option, so if you are signed up to an exchange or broker already, check if they offer this service.
Margin trades mean that you can borrow money from the platform in order to execute your trade. While you can have bigger profits this way, leveraging money also gives you bigger losses.
7. Using Inverse Exchange-Traded Products
Inverse exchange-traded products are bets that an underlying asset's price will decline. Similar to using the futures market and even using them alongside in order to give returns.
BetaPro Bitcoin Inverse ETF (BITI.TO) and 21Shares Short Bitcoin ETP are two products you can use to bet on a price decrease.
However, these products are only available to non-US residents.
Things to Consider When Shorting Bitcoin
Investing in markets always comes with risk, no matter the commodity. So, like with other assets, there are things you need to consider when shorting Bitcoin.
1. The Volatility of Bitcoin
We’ve all heard people’s opinions on the volatility of Bitcoin a thousand times over, so we don’t need to remind you again here. However, it is something you should always keep in mind whether you are investing in order to short Bitcoin or play the long game. Unfortunately, Bitcoin is volatile and will be for a while longer yet.
2. Bitcoin Is a Risky Asset
Sure, all assets carry risk but some are more risky than others. Since Bitcoin isn’t established, doesn’t have years of trust and growth, and doesn’t have enough of a history for investors or experts to analyze, it is currently seen as riskier than a lot of other options.
It’s difficult to make educated and informed decisions when there isn’t enough data to get educated. Of course, you can work with what’s available, but in terms of other commodities, Bitcoin is still an infant.
3. Regulation for Bitcoin Is Unclear
Any rumors regarding the regulation of Bitcoin always have an immediate effect on Bitcoin’s price. Although, fortunately, it’s only ever short-term. But even short-term fluctuations, especially if they are large, lead to panic or overanalysis among experts.
When these fluctuations occur, the more they’re analyzed or debated, the more investors question its future which can cause further, short-term blips.
Another example is back in late 2021 when the Chinese government announced that all cryptocurrency facilitations and transfers were now illegal. Mining farms were also closed down across the country which caused a temporary price drop once the news of this started spreading over the world.
4. Learn About Altcoins
Having a full picture before investing is always a safe option. Therefore, before you get involved with shorting Bitcoin, it’s a good idea to brush up on your knowledge of altcoins. Learning about other cryptocurrencies can help you make wiser decisions about Bitcoin.
Top FAQs About Shorting Bitcoin
Is It Legal to Short Bitcoin?
Yes. There are a variety of ways to short Bitcoin and take advantage of a potential drop in price. All the options we listed in this article are legal to do.
Is There One Option That Is Better?
Out of the seven listed, there are some that aren’t as risky and some that are riskier but offer more reward if they work. So, how good an option is for you depends on your final goal. However, futures and options are usually the most common option among investors when it comes to shorting Bitcoin.
Can I Use Leverage to Short Bitcoin?
Yes. You can use platforms such as Binance to use borrowed money for making your trades. But don't forget leveraged money comes with both larger rewards and losses.
Important Points to Takeaway
- There are a variety of options available for shorting Bitcoin, every option listed in this article is legal
- Shorting involves betting against an assist and profiting when the price of an asset decreases
- Short selling is always risky, especially with a cryptocurrency like Bitcoin that has a very volatile price
- People have walked away with large profits but people have also walked away with large losses so never invest what you can’t afford to lose
Why Joining a Mining Pool Is the Answer for Miners
A mining pool is a group of people who collectively agree to pool their resources and share the profits.
For example, have you ever split the cost of a bunch of lottery tickets with work colleagues or friends with the agreement that if one of the tickets wins you all share the prize? While you might have to share the prize, there is more chance of you winning in the first place. After all, it’s far better to share $1 million, than it is to keep 100% of nothing.
Well, a mining pool works in the same way. The group of miners will collectively use their resources to create more mining power. The more mining power you have, the higher the chance is that you will generate a block on the blockchain and therefore, receive the reward.
One of the best parts of joining a mining pool is that you don’t have to match other investors. The reward is divided relative to how much power each member contributed. This means you don’t have to be stinking rich or own a ton of resources in the first place. You simply take out proportional to what you put in.
You should also bear in mind that the mining pool will have an owner who will, rightfully, charge each member a fee for joining. The amount will vary from owner to owner, but it’s unlikely to ever be an unaffordable amount since the owner also benefits from having as many members as possible.
Be Part of the Future with Mining Syndicate
If you would like any more information about starting or expanding your Bitcoin horizon; reach out to us at Mining Syndicate. Our mission is simple: Strengthen the Bitcoin network by enabling small-scale miners to affordably purchase and reliably host miners.
As a small miner, Chris became frustrated by the lack of hosting options available for miners with under 100 units. As luck would have it, he found a 2.5MW mining facility for sale right down the road, and thus, Mining Syndicate was born. Facilities #2 and #3 are currently launching and #4 and #5 are in the works.
Why is Mining Syndicate so successful? Because we have a team of people who are just like you, eager to be a part of the future of mining. If you would like more information about how you can be a part of Mining Syndicate, how our facility works, or the products we sell, you can reach out to us here.
Be part of the largest mining pool in Texas and see how your future can change.