How To Short Bitcoin, Ethereum and Altcoins
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Cryptocurrency leverage platforms have evolved rapidly over the years and created different ways for people to sell Bitcoin with leverage, also known as shorting Bitcoin. This is an advanced method to hedge a crypto portfolio or profit from sudden volatility. Short-selling Bitcoin can result in massive profit potential but does carry risk. In this guide, we explain what is Bitcoin shorting, how to short Bitcoin, and when to do it.
Can You Short Bitcoin and Cryptocurrencies?
Yes, it is common practice for investors and traders to short Bitcoin. There are several ways this can be achieved which include using margin, futures contracts, CFDs, or an options trading platform. These strategies allow individuals to sell the value behind Bitcoin and buy it back at a lower price.
Key points about shorting Bitcoin:
- Shorting is essentially betting on the asset value decreasing in price
- Shorting can increase the amount of Bitcoin in a portfolio by profiting on price corrections during an uptrend
- Short selling can hedge a Bitcoin portfolio to lock in gains and minimize losses during a recession.
- Short-selling Bitcoin can create significant profit potential by using leverage to borrow more money
- Short selling is risky and can result in losses that exceed the initial deposit amount
Best Exchanges To Short Bitcoin, Ethereum & Crypto
- Binance (highest leverage trading volume)
- ByBit (advanced crypto shorting platform)
- Kraken (best place to short crypto in the US)
- KuCoin (short altcoins)
|Exchange||Crypto Assets||Trading Fees||Rating||Promotion||Website||Review|
|229+||0.02% (maker) / 0.04% (taker)|
|Up to $100 welcome bonus||Visit Binance Fu...||Binance Futures Review|
|331 (608 trading pairs)||0% (spot), 0.06% / 0.01% (futures)|
|0% trading fees for 30 days (spot only)||Visit ByBit||ByBit Review|
|222||0.16% (maker) and 0.26% (taker)|
|None available at this time||Visit Kraken||Kraken Review|
|Up to 500 USDT in bonuses||Visit KuCoin||KuCoin Review|
Where To Short Bitcoin and Crypto In 2023
Binance is the world's biggest and most popular crypto trading exchange in terms of the number of users and also volume on its spot margin and futures platform. It is the #1 destination to go to when it comes to trading futures, with more than 229 crypto trading pairs to short in the derivatives market with up to 100x leverage.
More so, Binance has an impressive 40 billion in daily trading volume at the time of writing. This means the trading fees to short on Binance are highly competitive. The shorting fees start at 0.02% (maker) and 0.04% (taker) and can be reduced with higher trading volumes and holding BNB tokens.
Binance has live market data on open interest, so you can check the open interest, long/short, and funding information for each crypto. For more information on what is open interest in crypto, read this guide.
Read our Binance review and full tutorial on how to short on Binance.
ByBit is a cryptocurrency platform that specializes in margin and leverage trading with derivatives contracts. It currently sits second on the charts for shorting trading volume behind Binance at 9.3 billion per day. ByBit is one of the best crypto leverage platforms with multiple markets to short Bitcoin and several other cryptocurrencies. Its primary offering is through derivatives and leveraged token products across 191 trading pairs.
What sets ByBit apart from its competitors is the trading and charting terminal which is world-class. Best suited for intermediate to experienced traders, the user experience is more than adequate for shorting cryptocurrencies with up to 100x leverage. The fees are competitive starting at 0.06% (maker) and 0.01% (taker). There is also a referral code for ByBit that gives a deposit bonus to short with on its futures platform.
Read our ByBit review and full tutorial on how to short on ByBit.
Kraken is a US-based crypto exchange that has margin trading for traders on its platform up to 5x leverage to short cryptos. While it is restricted to qualified traders only, it is a licensed platform for crypto in the United States for margin trading, unlike Binance and ByBit. There are 36 digital currencies that can be shorted with margin which is a limited offering, however, the fees are highly competitive starting from 0.02% (maker) and 0.05% (taker).
Read our full Kraken review and tutorial on how to short on Kraken.
KuCoin rounds off this list of the best places to short crypto. It is one of the largest altcoin exchanges in the world with more than 220 margin pairs that can be traded with 10 leverage with BTC, ETH, USDC, and USDT as the base collateral currencies. There is also a futures market that enables short traders to trade over 110 coins with leverage up to 100x. KuCoin is also unique as it includes in-built crypto bots to assist with shorting crypto between a grid.
When it comes to fees on the margin and futures platform, it follows a maker/taker model that starts at 0.02% and 0.06% respectively. The shorting fees are very competitive with fee discounts for holding KCS tokens.
Read our KuCoin review and full tutorial on how to short on KuCoin.
Best Ways To Short Bitcoin
1. Margin Trading Platform
One of the easiest and safest methods to short Bitcoin is to create an account with a cryptocurrency margin platform. There are several popular trading exchanges such as Binance, Kraken and Phemex that offer margin trading. Users can increase their position size by borrowing funds to short Bitcoin and other cryptocurrencies using leverage. For example, Binance features an advanced trading platform with up to 5x margin to multiply the earning potential by five times compared to a standard BTC spot trade.
2. Futures Contracts
Cryptocurrency exchanges that offer futures trading can short sell Bitcoin without owning the actual asset. Instead, the seller enters a contract with a specific time and price that Bitcoin will be sold at. This allows the person to short Bitcoin by speculating the overall price of BTC will be lower in the future. ByBit and Binance Futures are popular platforms for futures trading that are supported in most countries. Bitcoin investors in the United States that want to trade futures are limited due to strict regulations.
3. Bitcoin CFD Platforms
A Contract For Difference (CFD) is a financial agreement between a buyer and a seller that pays the difference in settlement price between the open and closing trade. CFDs are ideal for experienced traders and offer an alternative to trading Bitcoin futures products that involve depositing BTC to an exchange. Traders that use CFD platforms such as eToro and Plus500 can short-sell Bitcoin using fiat currency such as the US Dollar.
4. Options Trading
Options platforms such as Deribit allow for future prediction of the Bitcoin price. It involves purchasing the right but is not obligated to sell an agreed amount of Bitcoin at a specific date. Similar to CFDs and Futures contracts, traders do not need to purchase the real asset which makes Bitcoin options trading suitable for both beginners and experienced investors to hedge their portfolios. The downside to trading options is the expensive fees during high volatility which is expected for Bitcoin.
Where to trade crypto options? Read our list of the top crypto options platforms.
5. Short-Selling The Actual Bitcoin
The easiest way to short Bitcoin is to sell the actual asset using a trusted cryptocurrency exchange by converting BTC into traditional money. The individual has full control over the price to sell Bitcoin to cash and re-buy at a lower price to increase BTC holdings. For example, a person could sell BTC at $35k and buy it back at $30k resulting in a modest increase in Bitcoin. The risk with selling the actual Bitcoin is missing out on a lower price and having to buy back at a higher Bitcoin price.
6. Short on a demo account
There are several crypto demo accounts that allow traders to short a crypto of choice using leverage. By far two of the most popular platforms are Binance and Bybit's testnets. They are loaded with virtual USDT and the trading interface mimics the actual Futures platform. While the prices and trading volumes may not be accurate, it provides a test platform to practice shorting cryptos without losing money.
What Does Shorting Crypto Actually Mean?
Shorting is when a person borrows money to sell crypto in order to buy it back at a discounted price to return to the sender. It is the opposite of the manta 'buy low and sell high'. A person who short-sells crypto is betting on the price of crypto will decrease in value in order to buy crypto back for a cheaper price. The difference between the money that was borrowed to short crypto and returned once the position is closed at a lower price becomes their profit minus any fees.
How Does Crypto Short Selling Work?
The best way to explain short-selling crypto is by using an example using Bitcoin. If a person is confident the BTC price will decline over the coming days or weeks, they can borrow 5 BTC at $35,000 per coin and sell it on the open market for $175,000 using a cryptocurrency exchange.
If the price of Bitcoin decreases to $28,000, the person can decide to buy back the 5 BTC for $140,000. The 5 BTC that was borrowed for $175,000 is paid back to the exchange and a net profit of $30,000 is realized (i.e. $175,000 minus $140,000). However, if the person sold the 5 BTC when the price of Bitcoin increased to $38,000 per coin, the person would have to pay back $190,000 to the exchange and make a net loss of $15,000 (i.e. $175,000 minus $190,000).
When Should I Short Crypto?
The aim behind shorting crypto is to execute a sell order when the price is at an extreme high in order to buy it back at a lower price. This is opposite to the traditional investing concept of buying low and selling high which can be difficult to time in the market. During a bull market, a common strategy is to short-sell crypto at predetermined swing highs to reduce losses during corrections to the downside and protect their capital investment.
Ready to trade? Here's our full guide on how to trade cryptocurrency.
Main Reasons To Short Cryptocurrencies
Common reasons for traders to short crypto include:
- Price is too high: A person that speculates the price of crypto is overvalued or in a bubble based on fundamental metrics or technical analysis at a given point in time can decide to short BTC.
- Hedge to reduce losses: A person that is holding large amounts of crypto and believes a correction is due can short crypto using a margin or Futures platform to minimize potential losses during a downtrend.
- Bearish sentiment: For reasons based on fundamentals or technical charting analysis, a person that believes crypto has reached the top in a market cycle can place short sell orders to profit on price declines during a bear market. Using the fear and greed crypto index can be a useful tool to determine the bullish and bearish sentiment in the market.
- Short-Term Speculation: High price volatility associated with crypto entices both retail and institutional investors and traders to use leverage to reap huge potential gains. Experienced traders and institutional firms are able to maximize their return on investment using leverage by profiting off inexperienced crypto traders that lose money.
What Are The Benefits of Shorting Crypto?
Cryptocurrency is a highly volatile asset class that can experience sudden price movements. The high volatility presents great opportunities for advanced traders to speculate on the future crypto price or small price changes to make profits.
- Hedge portfolio risk: Short-selling crypto allows a person to hedge the risk of a larger portfolio. For instance, if they hold Bitcoin but are concerned the price is overvalued in the short term, the person can open a short sell position on Bitcoin. If the price of Bitcoin does decline, the short position will have an unrealized profit to offset the decline in value of the BTC price correction.
- Profit during a bear market: Some people believe that making money in crypto can only occur during the bull cycles. However, crypto shorting creates an opportunity for experienced traders to profit during a downtrend or longer-term bear market. Shorting crypto is also suitable for skeptics and naysayers that do not believe in crypto.
- Maximize benefits of volatility: The cryptocurrency market is the most volatile financial market and can experience sudden price movements in both directions. Markets with large price swings are great for those using crypto day trading platforms where users can use high leverage to make potential profits on multiple positions throughout the day.
What Are The Risks of Shorting Crypto?
Shorting crypto is highly speculative that comes with certain risks that do not exist with the traditional buy-and-hold method using a crypto hardware wallet. Trading CFDs, Futures and derivatives involve leverage which creates the possibility for uncapped losses that can exceed deposited funds. Particularly if a stop-loss is not used when trading perpetual contracts or any other margin product. Shorting crypto is recommended for experienced investors and professional traders with sound risk management principles.
Frequently Asked Questions
Yes, cryptocurrencies can be shorted on a trading platform. There are various methods to short crypto which include spot with margin and futures markets. This can include derivative-based products such as perpetual contracts, options, and leveraged crypto tokens.
Any cryptocurrency that is available on a margin or futures trading platform can be shorted. The most popular crypto assets such as Bitcoin, Ethereum, XRP, Cardano, and Solana can be shorted with leverage.
Crypto trading platforms will typically charge a transaction fee to short crypto. The fees will vary depending on the exchange, but will generally include commission fees, trading fees, spreads, and overnight fees. If borrowing funds for margin trading, there are interest charges which can accumulate daily.
Yes, there are tax implications for shorting crypto. Profits (and losses) made through shorting cryptocurrencies can be taxable under capital gains taxes depending on the country's taxation laws. The amount of tax depends on whether the person is trading as an individual or a company.
For advanced crypto investors and professional traders, short-selling cryptos can be a very profitable strategy to manage risk, and profit during downtrends or hedge against market volatility. However, speculating on the crypto price to enter a short position comes with significant risk and is not recommended for beginners that have a habit of entering trades as a result of FOMO or FUD.