How To Short Bitcoin

23rd February 2021

If you’re looking to take your Bitcoin trading to the next level, learning how to short Bitcoin is a good place to start. In this guide we’ll look at what that means, and five different ways that you can go about doing it.

What Is A Short?

A short, or short position, is when a trader sells a commodity (stock, crypto, gold, etc) with the intention to buy it back later as a better price. Shorting is a common practice particularly when traders imagine that the price of the commodity will fall in the near future. The biggest threat to a short position is a short squeeze, which happens when the price of the commodity starts increasing unexpectedly as the short sellers look to cover the stock. This is what happened when the subreddit community WallStreetBets took on Wall Street in the infamous GameStop debacle.

How To Short Bitcoin In 5 Ways

If you’re under the assumption that the Bitcoin price is going to crash soon, shorting Bitcoin might be the way for you. Below we outline 5 ways in which you can short Bitcoin in order to make some returns.

  • Prediction Markets

While more popular in traditional trading circles, prediction markets have recently started featuring in crypto markets too. Prediction markets allow traders to make an event in order to make a bet on what the outcome might be. If you were looking to short Bitcoin, you could create an event and predict that the Bitcoin price will decline by a certain amount. If another trader takes you up on the wager then you stand to profit. One example of a Bitcoin prediction market is Predictious.

  • Futures Market

Futures markets (crypto ones in particular) operate around the concept that you buy a cryptocurrency with a contract that specifies at what price and when the cryptocurrency will be sold. If you buy a futures contract on Bitcoin at a modest price with the expectation that it will increase, when the asset hits the predetermined price you will make a profit. However, selling futures contracts is a good way to short Bitcoin, as it shows a bearish sentiment and a prediction that the price will decrease. In recent years Bitcoin futures have become commonly available for trade or purchase on exchanges like Kraken and BitMex, as well as brokerage services like TD Ameritrade and eToro.

  • Margin Trading

Margin trading involves the process of a trader borrowing money from a platform and then buying assets. When they have made a profit they pay back the platform and keep the remainder. There is obviously loss potential here, as will any type of trading. There are several specialized crypto margin trading platforms, such as ByBit and BitMex.

  • Binary Options Trading

Binary options allow a user to buy either a call (if feeling bullish) or a put (if feeling bearish) on an asset to predict the price at a predetermined date. How to short Bitcoin with binary options is to create a put order and cash in once the price decreases. Should the price reach the amount estimated, you will receive your profits, however if it does not reach that price you will lose the amount paid for the binary option.

  • Short Selling Bitcoin

As the last option in how to short Bitcoin, it involves selling your BTC as a cryptocurrency. Establish a price that you are happy to sell at before you anticipate a market dip, sell the BTC through a reputable exchange then wait for the dip. Once it hits you can buy back the BTC and claim your profits.

Disclaimer: all these trading options come with considerable risk and you should never trade with more than you are willing to lose.

Shorting Bitcoin

If you’re ready to dive into the wonderful world of risk vs reward trading then this should set you up for a while. While the Tap app doesn’t facilitate all these trading options, it does allow users to short sell Bitcoin through the easy to navigate app. Users can buy and sell Bitcoin through a simple and reliable service, and keep all the profits – whether in crypto or fiat – in the highly secure Bitcoin wallet.

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