So, You Want To Short Bitcoin?

shorting_bitcoin
There was some recent stir up in the crypto community from billionaires; Bill Gates and Warren Buffet and Charlie Munger. With Warren and Charlie stating how Bitcoin and Crypto were alike to rat poison and Bill Gates mentioning that he would short cryptocurrencies, “if there was an easy way to do it.” Well, there is an easy way to do Mr Gates. Tyler Winklevoss even tweeted to Bill, asking him to put his money where his mouth is and to begin shorting Bitcoin;

All three billionaires are surely experienced in their field and have a lifetime of knowledge that most people would dream of obtaining. But just remember that not everybody is right all the time.

Anyways, enough with the billionaire dinosaurs bashing let’s get back to the topic at hand. So, you want to short Bitcoin? Well, it’s not as hard as Bill Gates seems to think it is. But before I get into that, let’s begin with what shorting is.

So, what is shorting? Also known as selling short or going short or short selling. There are several ways to short something, but let’s stick with the basics of what it is.

Shorting is when you want to take advantage of a declining stock and make profits based on its decline. For example, if you had the feeling that something, in particular, was about to fall in value and you felt like you could make a profit from that situation, then you would short.

One definition and method of short selling is you are selling something that you don’t actually own, this is margin trading. Let me start with my personal experience on Bitfinex. Basically, when you begin a short sale order, you are borrowing the asset or instrument that you wish to short. On Bitfinex.com, I moved 200 USD into my Margin wallet and before you initiate your position, make sure you have selected margin in the Order Form box. (Bitfinex has separate order forms and wallets for different markets, so you need to make sure you have your funds in the right place).

 

I then clicked on Margin sell to spend 200 USD to ‘borrow’ the equivalent amount in BTC (You may have to enter the amount of BTC that is equivalent to the amount of USD you wish to spend on borrowing the asset), the BTC that I just borrowed is then instantly sold at the market price at the time I initiated the transaction. I then waited for the price to drop (which it did) and bought asset back at a lower price than when I had sold it at the start.

So basically, after you’ve borrowed the asset, you then sell it at the current market price. Then, if and when the price of the asset declines, you then buy the asset back and return it to the owner who lent it to you, covering your short sale.
The difference between the market price you sold the asset at and the price that you set to buy it back is the number that will represent either your profit or loss.

There are also other ways and methods of short selling. For example, you could also short sell in a futures market and participating in a futures trade. In a futures trade, a buyer would agree to purchase the asset with a contract that specifies exactly when and at what price the asset would be sold at. If you plan to short Bitcoin, you basically believe it won’t rise above a certain price point by a certain date. So, you would make a futures contract along the lines of this example; Sell 5 Bitcoin at 20,000 USD each by December 20th, 2019.

Whoever takes this contract, agrees to buy your 5 Bitcoin on December 20th, 2019, for 20,000USD each, regardless of the market price at that time.

Those 2 examples are just the quick ‘how’ versions. You should also note that there is usually a % fee for borrowing during a margin trade, which is deducted out of your profits (or added to your losses). So always remember to check each and every platform and marketplace to see what the rules and details are.

So, Mr Gates, let me help you out and point you in the right direction to start shorting cryptocurrency, it isn’t as hard as you think! Here are just a few places that allow for Bitcoin margin trading and some also allow futures trading.

https://www.bitfinex.com/
https://www.bitmex.com/
https://www.etoro.com/

 

 


References and links:

https://www.investopedia.com/university/shortselling/
https://www.bloomberg.com/news/articles/2017-11-27/calling-a-bitcoin-top-here-s-how-you-can-short-the-digital-coin
https://www.investopedia.com/news/short-bitcoin/

Cover illustration artist gilad, DeviantArt

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Loy Heaton

Loy worked in Digital Marketing when he discovered and began playing around with Bitcoin. Just two months after his first Bitcoin purchase, he found himself working with Embily and has been a Cryptocurrency evangelist ever since.

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