4 Ways to Short Crypto

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When you have a negative market view, finding the best ways to express that sentiment can be challenging. Many people have questions about how to short crypto. So here are four ways for investors who want to short cryptocurrency.

Futures

Futures are contracts to buy or sell an asset at a specified price on a specified date. It allows people who believe an asset’s price will fall to bet against it, meaning they can profit from its decline.

For example, if you think the price of Bitcoin is going down and someone else thinks it’s going up, then you can short-sell your Bitcoins while others buy them as part of their long position. On the settlement date – say one month after you start trading – whoever’s right gets paid: either they get paid by paying back less than what he borrowed or if they lose money because Bitcoin went up in value and the other guy made money on his short position.

Margin Trading

Margin Trading is one way to go short on crypto. It’s risky, but it’s possible if you’re a seasoned trader and know what you’re doing. It is not recommended for beginners, however. The main problem with Margin Trading is that it involves borrowing money from a broker to trade with leverage (see above). 

The broker then charges interest on the borrowed funds, increasing your risk exposure and losses if things go wrong in the market. This can be particularly problematic when trading cryptocurrencies because their price fluctuations are much more significant than other assets. Any mistakes made during Margin Trading could cost more than just some money.

Options

Options are another way to short the market. Options are contracts that give you the right, but not the obligation, to buy or sell an asset at a certain price on or before a specific date. The buyer of an option pays a premium for this right and has unlimited loss potential if they get it wrong.

The buyer can choose whether to exercise their right when it expires by either buying or selling the underlying asset at the strike price. If they do not exercise their option, they lose their entire investment since they paid upfront for it.

ETFs

ETFs are a fund that tracks the price of a single asset, index or basket of assets. They’re traded on exchanges and can be shorted. If you want to buy an ETF that tracks crypto, you’d need to find one designed for crypto and read the fine print carefully.

Shorting an ETF works just like shorting any other security. You borrow shares from your broker and sell them into the market with instructions to return identical shares at some point in the future. Then when you want to cover your position before expiration, you’ll buy back those shares at whatever price they trade at on that day.

“The benefit to shorting Bitcoin is that it allows investors to profit in a down market. The drawback is that shorting involves more risk and is more complex than just buying or selling something,” says SoFi professionals. 

Shorting cryptocurrency is a great way to make money, but it isn’t without risks. Your best bet is to choose a reputable exchange, do your research and only invest what you can afford to lose.

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