The rollercoaster ride that has been Bitcoin’s valuations never end. The price begins to plunge and then begins to rise. These rapid fluctuations cause for investors to debate if shorting Bitcoin is a viable trading strategy. Understanding this strategy could be confusing for some traders and investors. However, those putting it into practice can receive substantial returns in the long run. Every plan comes with its risks, which is why we’ve detailed the five best ways traders or investors can short their bitcoins.
The significant concern for traders when short trading their Bitcoin assets is the threshold built-in for potential returns. This means that the amount that can be returned in profit is dependant on the current valuation of Bitcoin. Lower costs could mean lower profits. This is the one-factor investors need to account; if the trend of digital currencies begins to fall, there aren’t any counteractions that can be taken for losses. These thresholds are minimal in comparison to the profit that can be earned through specific trading instruments. These instruments assist in making investing more accessible. Down below are three ways in which traders can use these instruments to help with higher profits in a down-trending market.
Multiple digital currencies populate the blockchain market, but none are quite as popular as Bitcoin. Knowing the best moment when to selloff your acquired Bitcoins before the market enters a downward trend is critical and one of the best methods for shorting BTC. Clients that master this method gain the capabilities to selloff coins during peak seasons, waiting a few months and purchasing new coins in the downtrend market before it rises again. This method had worked for numerous traders, including Mark Dow from IMF Economist. He managed to complete one of the most prominent short trades in history after selling a substantial number of BTC at the perfect time.
There have been other digital currencies that have had extreme valuation changes, such as the XTP/USD Pairing, which dropped drastically in late 2018. However, Mark Dow and many other economists believe this pairing will return with a vengeance in the future. This is why it’s critical that whenever traders implement the Crypto Asset Sale Strategy, they watch market trends to educate themselves on the best reinvestment opportunities. Purchasing stabilized cryptocurrency at lower levels reduces the cost associated for traders. The benefit of this strategy is that 75% of the time, even if a trend is misjudged, a profit can be earned by waiting for Bitcoin or other digital currencies to rise in valuation.
Shorting Futures Contracts through Bitcoin isn’t challenging. Several exchanges worldwide provide this feature to investors, which is used as an insurance model on digital currencies that experience regular price fluctuations. Shorting these futures contracts requires investors to guarantee the selling of a preselected amount of Bitcoin at a specific date and time. However, the futures contract cannot be sold until another trader guarantee’s they will purchase that amount from the seller. These contracts can be agreed upon before the market drops, meaning that if BTC Valuations drop, the purchasing investor will be stuck with the bill. Shorting Futures Contracts is a more reliable way of implementing this method.
Contracts for Difference
Traders that don’t like the idea of shorting bitcoin through a futures contact are better suited to hold tokens, which makes them a viable candidate with CFD Trading. The tool is identical to futures but works in a slightly different manner. The investor holding the contract-for-difference will set a price they want to receive for the contract and sell their bitcoin on a predetermined date. This amount can be higher than the current valuations of BTC. Unlike Futures Contracts, there isn’t the option to exit the contract before it’s set date. Subsequently, once another trader has agreed to purchase your CFD, that agreement will stand firm. Unfortunately, contracts for difference have taken serious regulatory hits in recent months. Multiple firms are working around legislation in hopes of continuing to provide CFDs.
The Available Markets
There are two kinds of markets clients can engage with shorting Bitcoin. The most common is through a cryptocurrency exchange like Ripple or Binance, which enable traders to have access to hundreds of pairings and trading services. There are also essential decentralized markets where predictions on market valuations can be made. It’s more or less the digital currencies method for betting. Down below, we explain what players can anticipate with these markets.
- Prediction Markets – The easier of the two are prediction markets, where investors or traders can speculate amongst themselves when the next burst will occur. Prediction markets have been active in the global economy for decades but are considerably different with cryptocurrencies. The decentralized nature of cryptocurrency prediction markets means that trading is far less complicated than on centralized cryptocurrency exchanges. However, the profits earned are typically less than what can be made in a centralized market.
- Crypto Exchanges – Bitcoin trading is the best experiences through a cryptocurrency exchange. These exchanges are operated by large tech conglomerates like Tyler Winklevoss with his Gemini Exchange. The reason that these exchanges are preferred is because of the available leverage, which enables greater control on positions. The advantage to these significant leverages is that in certain instances when Bitcoin Valuations drop, profit is still earned at the amount of the leverage. Typically leverages range from 20:1 to 50:1. There have been multiple jurisdictions worldwide that have banned shorting on crypto exchanges in regulated markets. Going to an offshore exchange opens clients up to high leverages.
Those investors or traders that educate themselves on the hazards and benefits of shorting cryptocurrencies can receive multiple benefits that standard clients don’t. Many investors of Bitcoin have mastered this method of trading for worst-case scenarios when the market is about to have a sharp downward trend. This is the primary purpose of shorting. Select the Buy Low and Sell High Strategy during an upward trend, and the Shorting Strategy with a downward trend.