Binary Options Trading
Also, traders can shorten Bitcoin with call and put options. You would execute a put order if you wanted to shorten the currency. This is usually done with an escrow company. This would mean that you want to be able sell the currency at the current price even if it drops in the future. Although binary options can be found on a variety of offshore exchanges and are relatively inexpensive, the risks and costs are very high. Binary options trading is more profitable than futures because you can choose not to sell your put options. Your losses will be limited to the amount you paid for the options. OKEx and Deribit are two of the most popular trading venues.
Another way to shorten Bitcoin is through prediction markets. Prediction markets in cryptocurrency are very similar to the ones in mainstream markets. An event can be created by investors to place a wager on its outcome. If you predict Bitcoin’s decline, or a percentage thereof, you could make a bet and win if the outcome comes true. Augur, Gnosis’ Omen, Polymarket are all popular crypto prediction markets.
Bitcoin Assets for Short-Term Sale
This strategy may not be for everyone, but those who are willing to risk their money on Bitcoin pricing could reap the rewards. You can sell tokens at a price that you feel comfortable with, wait for the price to drop, then purchase tokens again. If the price doesn’t adjust as expected, you may lose your money or lose Bitcoin assets.
Selling Bitcoin short-term can also come with significant risks and costs. To store your cryptocurrency, you’ll need to pay Bitcoin wallet fees or custody fees. The price volatility of Bitcoin is also a risk that you will have to take on. You could lose a lot of money if the price rises (rather than down as you hoped). You can also use leverage to conduct such trades on certain exchanges. Leverage can also magnify losses or gains.
Contract for Differences (CFD) are a financial strategy that makes money on the basis of the difference in settlement prices. Bitcoin CFDs, which are basically bets on cryptocurrency’s prices, are very similar to Bitcoin futures. You are trading Bitcoin short if you buy a CFD that predicts Bitcoin’s price falling.
CFDs offer a longer settlement term than Bitcoin futures. They are not predetermined and have fixed settlement dates. Bitcoin CFDs don’t require physical delivery. You don’t have to pay custody fees. You can trade on certain Bitcoin CFD markets based on Bitcoin’s performance, relative to fiat currency, or another cryptocurrency.
Use of Inverse Exchange-Traded Product
Inverse exchange-traded derivatives are bets on the price of an underlying asset falling. These products are similar to futures contracts. They can be used in conjunction with other derivatives to generate returns. You can bet on Bitcoin’s price falling using exchange-traded products such as the BetaPro Bitcoin Inverse ETF(BITI.TO), and 21Shares Short Bitcoin EPTP. These products are not available to residents of the United States.
Factors to consider when shorting Bitcoin
Shorting Bitcoin comes with a lot of risk, as is any strategy involving cryptocurrencies. These are the things you need to consider when shorting Bitcoin.
Bitcoin price is volatile
The jokes about Bitcoin’s price volatility are now old news.2 But they still have relevance. Derivatives are the most common way to short Bitcoin. These derivatives are based upon Bitcoin pricing. Investor gains and losses can be influenced by fluctuations in cryptocurrency prices. Bitcoin futures, for example, mimic spot price movements, so they can’t be used to hedge against actual Bitcoin investments. Options trading in Bitcoin can increase losses due to volatility of the underlying cryptocurrency.
As an asset, Bitcoin is highly risky.
While shorting cryptocurrency, price is only one of many risks that you need to consider. Bitcoin is still relatively new compared to more established assets. Bitcoin has only been around for 13 years. It is still relatively new and investors don’t have enough information to make an informed decision on its operation or potential feasibility as an asset. Many issues surrounding Bitcoin forks remain unresolved, for example. CME and other established platforms are safer and can guarantee execution of Bitcoin derivatives. However, new platforms like prediction market Augur were initially “clunky” and susceptible to hacks.
Bitcoin’s regulatory status is not yet clear
Although it claims to be global, Bitcoin’s regulatory status in different geographies is not clear. Several of the most popular platforms for Bitcoin trading such as OKEx, FTX and Deribit are not available to American investors.45 This means that many exchanges have been able offer offerings that would be prohibited if they had proper oversight. Binance, for example, offered 125% leverage to Bitcoin futures trading up until recently.6 This lack of regulatory oversight means that customers of these exchanges have limited legal recourse.
It is important to be familiar with order types.
You should familiarize yourself with the different order types before you take a position in Bitcoin. These orders can limit your losses if the price trajectory doesn’t go in the desired direction. Stop-limit orders can be used to limit your losses when trading derivatives.
FAQ: Bitcoin Shorting
Is Bitcoin possible to be traded?
Yes. Yes. You can short Bitcoin’s volatile prices by placing bets against it with derivatives such as options and futures. It is important to understand the risks involved in shorting, which can be quite risky.
What are the most popular ways to reduce Bitcoin price?
Shorting Bitcoin’s derivatives, such as options and futures, is the most popular way to short it. You can also use put options to place a bet against the price of Bitcoin. Another way to shorten Bitcoin pricing is through contract for differences (CFD). This allows you to pocket the difference between the asset’s actual and expected prices. Another avenue to short Bitcoin is through prediction markets.
What are the potential risks associated with shorting Bitcoins?
Shorting Bitcoin poses two major risks. First, there is the price risk. It can be difficult to predict the price movements of underlying assets due to volatility in prices. A lack of a global standard regulatory framework for Bitcoin is the second major risk. Many of the largest futures trading venues for cryptocurrency are not regulated. Investors have fewer options in case something goes wrong.
Can I short Bitcoin using leverage?
Binance, futures trading platforms and many cryptocurrency exchanges allow you to leverage your money or borrow money to bet on Bitcoin’s fall. However, leverage can increase gains or decreases. The risk of using leverage is proportionally higher.