If you think that investing in Bitcoin and owning actual Bitcoins is the only way to be a part of the crypto market, then we would like to tell you that this is not true. As the crypto market evolved, more ways have come forward for investments and trading, and one such form of trading is the Shorting of Bitcoins, which is carried out on a margin trading platform.
Before we discuss how it is done and what all platforms can use to carry out the shorting of Bitcoins, let us first understand what bitcoin shorting is.
What is Bitcoin Shorting, and why should you short bitcoin?
The standard thought process of every person is that whenever we invest, we can only make a profit on it if the price increases and goes over the “buy-in” price. But not many people knew that profit could be made as an asset's value decreases. This process is known as short selling the asset or selling short. However, shorting Bitcoin is a concept that can only be implemented if the person is sure about the future price decline.
Bitcoin is known for its volatility, and looking at the past trends, knowing how to short Bitcoin can be a handy tool in a trader’s arsenal. Shorting is a crucial technique to understand with great potential in the Bitcoin market.
Short selling is the concept of making profits by buying a BTC at a certain point, and if the investment’s price declines, you’ll profit from that investment. Usually, the lower the price is, the more profit you’ll make on the investment.
Let’s make you understand this better with an example. If you short a Bitcoin at $10,000 and the price drops to $8,000 in a few days, it would fetch you a profit of about $2,000. However, things can change if the price goes long and climbs towards $11,000, then the person would lose $1,000. Shorting is riskier as compared to going long.
How to Short Bitcoin?
Shorting Bitcoin should not be an impulsive decision as it requires a careful and long analysis of the market and a study of historical trends. The shorting process should be carried out only when you are confident that the Bitcoin price will go down.
Shorting of Bitcoin begins by borrowing a certain amount of BTC from the margin trading platform to sell them short. The ultimate goal is to buy back the same amount of BTC at a lower price. The profit you make is the difference left with you once you’ve paid the debt to the platform.
If the trade goes as planned and the Bitcoin price goes short, the profit made by the trader is safe, and the platform can lend them more BTC to sell short. However, if things go wrong and the market goes long, the trader will be stopped or REKT from the trade. This will happen once the initial investment has been used, and the account will never go in the minus zone.
If you wish to make profits by shorting bitcoin, it is essential to study the market and start with a small investment to understand it better. There are other ways to short bitcoin and make a profit from it safely.
Futures trading of Bitcoin is another way to short-sell Bitcoin in the futures market. In a futures contract, you pose as the buyer and agree to buy the Bitcoin at a fixed price for a future date. In this type, you hope for the price to go above the fixed price so you can buy the BTC below the market price.
Where to Short Bitcoin?
The process of shorting bitcoin is slowly picking up in the crypto market as more people are moving towards this way of trading. Looking at the surge in people's interest in BTC's shortening, many exchanges have come forward to provide the facility for margin trading.
There are various platforms for margin trading to short Bitcoin. One such platform is BitMEX, which offers the facility to long and short Bitcoin and various contracts for trading. You can leverage up to 100x leverage on Bitcoin; for other cryptocurrencies, the leverage varies from 20x to 50x.
BitMEX charges a 0.075% fee on Bitcoin trades and a 0.25% fee on other crypto assets. Another platform for shorting bitcoin is OKEx, which offers a 5x leverage on over 100 crypto assets, including Bitcoin, Ethereum, and Litecoin.
The sign-up process requires KYC, whereas BitMEX has no such policy. The fee on OKEx depends on the capital a person invests through the exchange. There are chances that Coinbase would add shorting of Bitcoin on their exchange as well in the future.
Conclusion: Should you short bitcoin or not?
The shortening of Bitcoin is considered one of the most challenging investment strategies, but it depends on how well the investors research and understand the market. The benefits of the investments take time, and the volatility of the Bitcoin market is well known, so indulging in shorting Bitcoin should be done at your own risk.