Most crypto discussions are generally centered around what cryptocurrencies will make you the most money from an investment standpoint. As more people buy the token or its usability scales, so does the overall value of the token which ends up growing your original investment. Very simple.
On the other hand, a Short is often an overlooked method for making money and that’s because it’s a bit more complicated.
Long vs. Short
Long position: An investor purchases an asset and therefore owns it. The asset’s value is subject to the open market and can change over time.
So, what is a Short-position or short-selling?
“Short-selling is when an investor borrows an asset from a lender with the anticipation of the asset decreasing in value. The investor sells the borrowed asset to another buyer, waits for the asset’s value to drop, then repurchases the asset at the lower price. The investor then returns it to the lender, keeping the extra profit made between the transaction.”
Why Shorting is more complex in crypto
The main reason is this:
Everything has to be done manually.
The process of shorting is far more accessible in the traditional finance market, whereas crypto lacks the streamlined utilities and infrastructure to easily fulfil a short.
When & Where Short-selling is best suited
Short-selling is a way to profit from downward price movements in the market. Once it’s apparent that a bear market is happening, shorting becomes a great tool. It can help protect a portfolio by offsetting losses when anticipating a market crash or negative trend.
Generally speaking, a bear market – when an asset class or broader financial market is in a significant medium to long term downtrend – is the best time to short as the downward potential is extremely likely, whereas there’s not much chance of an asset increasing in price tremendously.
Different ways to short crypto
[1] The Prediction markets are a good place to start with crypto shorting. These markets require no upfront capital and are ideal for making quick smaller trades. Some of the most popular prediction market platforms are Augur, Polymarket, Hbar, and Gnosis Chain.
[2] Another way to bet against the crypto market is to open a futures contract or an options contract on crypto ETFs or crypto-related stocks (public companies or entities that fund or own crypto platforms such as an exchange, a research lab, crypto mining teams, software development, and companies that hold crypto assets on their balance sheet).
[3] A number of exchanges allow users to borrow their assets. This is one of the easiest ways to access crypto shorting, however, be wary of borrower or loan fees.
[4] Open a margin account with an exchange. For example, Binance offers this feature in its trade section. Simply just:
Fill out the application and answer the test correctly.
Provide collateral.
Select the asset you’d like to borrow (different hourly interest rates apply).
Then select the asset trading pair, set a target price and amount, and finalize the margin sell order.
To repay, place a buy order for a lower price once the asset has dropped in value, then select the repay section and return the borrowed amount while keeping the profit made in between.
[5] Bitcoin binary options is a form of short-term options trading that allows users to place stakes on the price action of Bitcoin within a specific time frame.
[6] The final method of shorting crypto is through a CFD (Contract-for-difference) platform, which allows users to speculate on the price action of crypto assets. This gives access to a short position without the requirement of finding a lender to borrow crypto from. Essentially this is placing a bet with your own assets on the crypto market.
Top 5 Crypto Margin trading exchanges
#1 Binance – Most adaptive system.
#2 KuCoin – Easiest to use.
#3 Phemex – Best market options.
#4 Kraken – Best security.
#5 ByBit – Globally available.
Shorting carries big risks in crypto especially
The price of an asset can climb infinity. This means if a short-sell is placed but the asset increases in value, the user could be in unlimited debt.
Knowledge in market trends & patterns is essential. It takes timing and discipline to be successful with shorting crypto. It also requires both predicting the direction of the market as well as the timing of the trade to become profitable.