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6 Profitable Bitcoin Short-Selling Strategies

Samson Ononeme | Mar. 5, 2019
6 Profitable Bitcoin Short-Selling Strategies

Given the extreme volatility of cryptocurrencies, knowing these 6 Bitcoin Short-Selling Strategies will help you make some profits when you believe the price will drop.

March 4, 2019, | AtoZ Markets - The idea of investing in an asset that will increase in value sounds exciting to many people. They just buy the asset and wait for the price to rise. However, many people are unaware that they can also make a profit when they expect the value of the asset to decrease; namely, short-selling the asset.

For those investors who think that the price of BTC is likely to drop at some point in the future, shorting the currency might be a good option. AtoZ Markets brings to you 6 profitable Bitcoin short-selling strategies that you can apply.

6 Profitable Bitcoin Short-Selling Strategies

While a number of crypto analysts remain pessimistic due to their volatile nature, both recently and historically, the urgency to start trading and learning how to short Bitcoin has never been more urgent.

1# Direct short-selling Bitcoin

Bitcoin Short-Selling Strategies

This strategy might not appeal to long term investors, however, those interested in buying and selling actual Bitcoin could directly short-sell the digital coin. You sell off your existing tokens at a price that you are comfortable with and wait until the price drops.

Then, when the crypto stabilizes at a lower level, you can buy more tokens again at a lower price. Nevertheless, if the price does not go the direction you expected, you’ll just have less of a gain or even lose Bitcoin assets in the process.

At CGCX crypto exchange, the world's first fully insured crypto platform, traders are provided with the opportunity to sell Bitcoin to US dollar, a unique feature that makes it stand out among other exchanges. 

Pros:

  • Can be beneficial for the intraday traders.

Cons:

  • High capital risk
  • Not for the long term investors

2# Bitcoin futures trading

Just like other assets, Bitcoin has a futures market and you can also find ways to short sell the digital coin in the futures trade.

Here’s how it works: a future is basically a contract. In this type of contract, the buyer agrees to buy a certain amount of Bitcoin at a future date at a specific price.

If you buy a futures contract, you’re predicting – expecting– that the price of Bitcoin will rise. That way, when your contract expires you can buy Bitcoin below the market price.

However, selling a futures contract suggests a bearish outlook and a prediction that Bitcoin price will decline. Bitcoin futures are available on the Chicago Board Options Exchange (CBOE) and Chicago Mercantile Exchange (CME) and are offered by many major crypto exchanges.

Pros:

  • Make money in a bear market
  • You don’t have to pay commission fees
  • High leverage

Cons: 

  • You need to be a professional trader to get the full benefits
  • Mainly a speculative product

3# Bitcoin margin trading

This is one of the easiest methods to short sell Bitcoin; by using a dedicated cryptocurrency margin trading platform. With this type of trading strategy, you are able to borrow money from a broker in order to make a trade, hoping that your prediction will move in your favour. It's worthy of note that there may be a leverage factor, which could either increase your profits or your losses.

There are several Bitcoin exchanges that allow margin trading at this point, so you have plenty of options.

Pros:

  • An increase in buying power
  • Flexibility
  • Exponential account growth

Cons:

  • Increased risk
  • Stress while trading
  • Margin calls

4# Prediction markets

Bitcoin Short-Selling Strategies

Prediction markets are another way to consider shorting bitcoin since investors try to predict and bet on when the next Bitcoin bubble will burst.

Having been in operation for decades, prediction markets allow investors to create an event to make a bet on based on the outcome, such as one about Bitcoin’s performance. If you think that the prediction will come to pass, you buy shares; if you think it will fail, you sell shares.

Similarly, to short Bitcoin, you’ll want to find a prediction that the price of BTC will decline and go long on it, or find one saying that the price of BTC will rally and go short on it. Predictious is one example of a prediction market for Bitcoin.

Pros: 

  • Accuracy can be maintained using proper trading strategy tools and technical analysis.
  • Long term forecast 

Cons:

  • Highly speculative 
  • Not for novice traders

5# Binary options trading

This is another way that allows investors to short-sell Bitcoin. This binary options trading involves “put” and “call” options.

Buying “put” options give the trader the right to sell a specified amount of Bitcoin, which you set, at a certain price at a certain time.
This means that you would be aiming to be able to sell the coin at today's price, even if Bitcoin loses value later on.

Meanwhile buying “call” options gives the trader the right to purchase a certain amount of Bitcoin at a fixed price until a certain date – that’s the expiration date.
While binary options are available through a number of crypto exchanges, the costs, as well as risks, are quite high.

Pros:

  • Small budget can still trade
  • Low cost way to trade a lot of different underlying instruments.

Cons:

  • Poor regulation and shady spots in history
  • Limited demo testing capabilities.

6# Contract for Difference (CFD)

If the idea of short-selling Bitcoin using a futures contract sounds pleasing to you but would prefer not to physically hold tokens, CFD trading is the right strategy for you.

With CFD trading, the buyer and the seller of the contract agree to settle any change between the current price of a specified amount of Bitcoin and the future price in fiat currency on the date the contract expires.

For example, an investor might sell a CFD on Bitcoin for a week in the future for $5,000 USD. If the price of BTC were $3,000 USD on the date the contract ends, the buyer would pay them $2,000 USD per BTC specified in the contract. On the other hand, if the price of BTC went up to $8,000 USD, they’d owe the buyer $3,000 USD per BTC specified in the contract.

One advantage of this investment vehicle over futures is that CFDs helps traders diversify their portfolios by trading across different markets – and doing so with leverage, which can maximize their potential profits. Most forex brokers offer CFDs along with currency pairs and that means that a trader can use both with one trading account.

Pros:

  • Trade both long and short positions
  • Instant order execution

Cons:

  • You can lose everything you invest
  • You can easily overtrade

Note

Please note that AtoZ Markets do not recommend binary options and prediction markets. It is always best to seek practical advice from licensed financial advisors to reduce investment risks, especially when engaging with the complex crypto market.

Think we missed something? Let us know in the comments section below.

Disclaimer: The views and opinions expressed in this article are solely those of the author and do not reflect the official policy or position of AtoZ Markets.com, nor should they be attributed to AtoZMarkets.