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How to Short Bitcoin – A Beginner’s Guide

By: John West | Last updated: 3/8/24

Short-selling is an investment method that allows you to benefit from drops in the price of a particular asset. This post will teach you how to short-sell Bitcoin and what to look out for.

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How to Short Bitcoin in 3 Steps Summary

  1. Sign up to Binance, Kraken, or Bybit and verify your account
  2. Load your futures account with USDT (Futures are not yet available on Binance.US)
  3. Choose “Sell/Short” and the amount that you wish to sell short.

That’s how to short-sell Bitcoin in a nutshell. If you want a deeper explanation about short selling, how it’s done step by step, and what to look out for, keep on reading. Here’s what I’ll cover:

  1. What Does Shorting Mean in Crypto?
  2. How to Short-Sell Bitcoin?
  3. When Should You Short Sell?
  4. The Risks of Shorting Bitcoin
  5. Conclusion – Should You Short Sell?

Remember that neither I nor anyone on the 99Bitcoins team is a financial advisor, and this post is not financial advice. The purpose of this lesson is to explain short selling as a tool. It’s available in various markets and is also available for cryptocurrencies, so I want you to understand better what it is.

1. What Does Shorting Mean in Crypto?

Short selling (often referred to as ‘shorting’) is an investment method that involves profiting from an asset’s price drop.

How Does a Short Work?

Basically, shorting works by borrowing an asset (such as Bitcoin) and selling it immediately at its current price. Later, you repurchase Bitcoin to repay the person or company you borrowed it from.

Hopefully, when you go to repurchase the Bitcoin, prices will have dropped, so purchasing the assets that need to be paid back will be cheaper. You then get to keep any leftover money as profit.

Let’s illustrate this with a short example:

  • You short-sell 10 bitcoins when the price is $4,000
  • This means you borrow 10 bitcoins and sell them for a total of $40,000
  • The price of Bitcoin drops to $3,500
  • You repurchase 10 bitcoins to give back to the company or exchange you borrowed from at 10*$3,500 = $35,000
  • You keep the difference in price. Your total profit is: $40,000-$35,000 = $5,000

2. How to Short-Sell Bitcoin

To short Bitcoin, you’ll need to sign up for an exchange or platform that offers short selling and then place a short sell order. The agency will then sell the bitcoins from their own supply, assuming you will repay them with an equal number of bitcoins in the future.

For example, if you short-sell 10 bitcoins, you will eventually have to “cover” those 10 bitcoins, whether prices rise or drop.

If prices drop, buying these 10 bitcoins back will be cheaper to repay the exchange. If prices rise, it will be more expensive.

When short-selling, the firm or individual who loaned the bitcoins to you can generally recall the assets at any given time and must give you only short notice. So make sure you read any rules, regulations, or guidelines for “covering” any assets you short sell.

With markets fluctuating at such a rapid rate, costs can swing wildly, putting you at risk. Short selling can be especially risky if the lender calls in the assets before prices have a chance to drop.

Short selling is actually very common with stocks, and most major trading platforms allow you to short stocks.

There are a variety of ways to short Bitcoin:

Short Sell CFDs

CFD stands for Contract for Difference. This means that instead of borrowing the Bitcoin, selling it, and then buying it back at a lower price, you agree to pay the difference.

So, in the case of CFDs, you will get paid the difference if the price drops—without needing to go through all the hassles of buying and selling coins.

Shorting via a Bitcoin Exchange

Bitcoin exchanges geared towards crypto traders offer short-selling options; some allow leveraged shorting. Leveraged shorting means you can borrow and use more money from the exchange than you actually have to buy the bitcoins you want to short.

For example, say you have $1,000 on the exchange and leverage on a 1:3 ratio. You can now short-sell up to $3,000 (three times what you have), which would be three times the leverage.

Leveraging is considered risky since if things don’t go as you intended, the exchange will close your trade sooner than you expected (because they know you’re using the money you don’t own). In other words, leveraging magnifies both gains and losses.

Major exchanges that allow you to short-sell Bitcoin include:

Put Options

Certain specialized exchanges, such as Binance, Bybit, and OKX, offer Bitcoin options trading. Buying an option grants the ability, but not the obligation, to trade at a specific price by a certain expiry date.

If you have experience with options trading, this method might suit you. Otherwise, it’s not recommended for beginners. Options are complex but do allow for greater flexibility and higher leverage.

3. When Should You Short Sell?

Shorting Bitcoin is trading against a long-term uptrend; the longer the trend remains, the riskier it becomes.

One thing to remember – the maximum profit potential of a short is limited to a Bitcoin price of $0, whereas buyers (those going “long”) have no limit on their profit.

If you examine Bitcoin price charts, you’ll soon realize the truth of the old trading aphorism, “Price takes the stairs up, but the elevator down.” In other words, bullish moves take time to build and develop, whereas bearish moves tend to be relatively short and sharp.

Trying to short the top of a giant bull run is tricky; you’ll likely stop out multiple times as Bitcoin keeps rising like a stubborn zombie.

Keep in mind that if many traders are positioned similarly, a price surge may result as fearful traders compete to close their shorts (i.e., they buy back the Bitcoin they sold). This is known as a short squeeze.

Analyzing the Market for Short Sell Opportunities

Beyond technical analysis, it helps to know the Bitcoin space well. For reference, here are different types of events and how they affected Bitcoin’s price.

Past events that triggered major sell-offs

  • Failure, bankruptcy, or hacks of major crypto exchanges.
  • Hostile regulatory action in major countries (e.g., “China bans Bitcoin” and SEC clamps down on ICOs).
  • Well-known developers quit the Bitcoin development team (e.g., Mike Hearn, Gavin Andresen).
  • Heightened hard fork risks (e.g., Bitcoin forking into Bitcoin Cash).
  • Delays or setbacks in widely-desired upgrades (e.g., SegWit, Lightning Network).

Events expected to have a negative impact on price

  • Any contentious hard fork.
  • Breach of the cryptographic primitives used in Bitcoin (SHA256, secp256k1).
  • The potential discovery of Bitcoin code exploits that threaten wallet security or network operation.
  • Hostile actions against Bitcoin by governments.
  • Movement in the first million or so bitcoins mined by Satoshi Nakamoto.

Events that have had little impact on price include

  • The failure of darknet markets (e.g., Silk Road or Alpha Bay).
  • Claims of having unmasked the identity of Satoshi Nakamoto (e.g., Dorian Nakamoto or Craig Wright).
  • Hostile pronouncements from journalists, economists, politicians, bankers, etc. (see our Bitcoin Obituaries section for over 450 times Bitcoin has been proclaimed “dead”).

4. The Risks of Shorting Bitcoin

I should warn you that short-selling any asset is a high-risk venture. Normally, when you invest in an asset, your losses are limited to the amount of money you have invested in that asset.

For example, if you invest $10,000 in a stock that suddenly collapses and becomes worthless, your losses will be limited to the $10,000 you invested.

When short selling, however, your losses could extend far beyond your initial investment, which is very important to consider, especially with Bitcoin. The easiest way to explain this is to use another example:

Let’s say you short-sold Bitcoin at $100 per coin. You borrowed 10 bitcoins, or $1,000, to do this. You are counting on the price dropping below $100 per coin to rebuy the 10 bitcoins cheaper than you sold, return them to the lender, and then pocket the difference.

However, you could be trapped if the price didn’t fall to your target or had a sudden upward spike. So let’s assume that all of a sudden, Bitcoin’s price went up to $4,000, which can definitely happen with Bitcoin. This means the 10 bitcoins you must pay back will now cost you $40,000!

As you can see, short-selling any asset can be very risky. You must be very careful if you want to short-sell Bitcoin or anything else.

Only invest if you are confident that prices will drop and have money to cover your losses if investments rise. Ensure you watch prices closely and cut losses if prices rise too quickly.

5. Conclusion – Should You Short Bitcoin?

Shorting Bitcoin is a useful but very risky way to make money. By borrowing bitcoins and selling them when the price is high, then buying them back when the price is low, you can earn money on the difference even when markets are bleeding.

Shorting usually isn’t recommended for traders just starting out because of the high risk. If you do decide to short Bitcoin, make sure you only invest money you can afford to lose. Also, make sure to stay up-to-date with current events so you can anticipate any change in the price direction.

Have you had any experience with short-selling Bitcoin? If so, I’d love to hear about it in the comment section below.

Having delved into futures trading in the past, my intrigue in financial, economic, and political affairs eventually led me to a striking realization: the current debt-based fiat system is fundamentally flawed. This revelation prompted me to explore alternative avenues, including investments in gold and, since early 2013, Bitcoin. While not extensively tech-savvy, I've immersed myself in Bitcoin through dedicated study, persistent questioning, hands-on experience with ecommerce and marketing ventures, and my stint as a journalist. Writing has always been a passion of mine, and presently, I'm focused on crafting informative guides to shed light on the myriad advantages of Bitcoin, aiming to empower others to navigate the dynamic realm of digital currencies.

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27 comments on “Short Sell Bitcoin”

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  1. You can open a brokerage account, earn a margin and fund it and the total amount in the account could be a cap on the loss. If I short 1000 on bitcoin at rises even to 200k..but I hold on.. I have over 50k I thr account.. Then. It crashes and it’s ridden down to 10000 I cover then, I eran 3x or so.. That’s an easy scenario if they ride it to 3k..i make 10x on my investment. Btc is such a crappy asset…

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