What is Short Selling Bitcoin All About?

Short-selling is an investment method that allows investors to benefit from drops in prices and value of a particular asset, in this case, Bitcoins.

What is Short Selling Bitcoin All About?

Short selling allows you to basically borrow an asset, such as Bitcoins, and sell it at current prices. Later on, you can purchase the Bitcoins to pay back the person or organization you borrowed them from when selling the first time around.

Hopefully, when you go to repurchase the Bitcoins, prices will have dropped, so it will be cheaper to purchase the assets that need to be paid back.

Let's illustrate this with a short example: You short sale (borrow and sell) 10 Bitcoins when the price is $4,000 This means you get $40,000 Price of Bitcoin drops to $3,500 You repurchase 10 Bitcoins to give back to the agency you borrowed from at 10*$3,500 = $35,000 Your total profit is $40,000-$35,000 = $5,000

How to Short Sell Bitcoin?

If you want to short sell Bitcoins, you will contact a trading agency or platform and place a short sell order. The agency will then sell the Bitcoins from their own supply, based on

the assumption that in the future you will repay them with an equal number of Bitcoins. If you sell 10 Bitcoins, for example, you will eventually have to "cover" those 10 Bitcoins, whether prices rise or drop. If prices drop, it will be cheaper to rebuy these 10 Bitcoins. If prices rise, it will be more expensive.

When short-selling, the firm or individual who loaned Bitcoins to you can generally recall the assets at any given time and are required to give you only a short notice. So make sure you read any rules, regulations, or guidelines for "covering" any assets you short sell. With markets fluctuating at such a rapid rate, costs can swing wildly, putting you at risk. Short selling can be especially risky if the lender calls in the assets before prices have a chance to drop.

There are a variety of ways to short Bitcoin:

Short Sell CFDs

Short selling is actually very common with stocks and most major trading platforms allow you to short stocks. Some Bitcoin CFD trading platforms now allow you to shortsell Bitcoins (e.g. AvaTrade or Plus500), when trading CFDs your capital is at risk. Also, Keep in mind that these platforms don't actually hold Bitcoins and are using a method called Contract for Difference.

Shorting via a Bitcoin Exchange

Exchanges geared towards crypto traders offer short support as a matter of course, and some allow for leveraged shorting too. These exchanges include: Bitfinex GDAX Kraken BTCC Bitflyer ... and many more. Ensure that the exchange you pick is reputable and remember; any bitcoins kept on an exchange are only yours in theory. Put Options Certain specialized exchanges, such as BitMEX, offer Bitcoin options trading. Purchase of an option grant the ability, but not the obligation, to trade at a specific price by a certain expiry date. If you have experience with options trading this method might suit you, otherwise it's not recommended for beginners. Options are complex but do allow for greater flexibility and higher leverage.

Timing a Bitcoin Short Sell IF you time it right...

Shorting Bitcoin is trading against the long-term uptrend; the longer you hold your trade the riskier this becomes. Of course, this is only true provided Bitcoin markets remain bullish (i.e. price go up) ? but in July 2017 this appears to be the expectation of

amateur and professional traders alike. Another thing to remember ? the maximum profit potential of a short is limited to a Bitcoin price of 0, whereas buyers have an unlimited upside of [infinity]. If you examine Bitcoin price charts, you'll soon realize the truth of the old trading aphorism, "price takes the stairs up but the elevator down." Whereas bullish moves take time to build and develop, bearish moves tend to be relatively short and sharp.

Trying to short the top of a big bull run is tough; you're likely to stop out multiple times as Bitcoin keeps rising like a stubborn zombie. The smarter play is to short when price reaches resistance; such as the top of an established downtrend line, channel, or previous major high. If price persistently pushes through any of these structures, you'll soon know that your short was wrong and can exit ("close") it at only a minor loss.

Keep in mind that if many traders are positioned similarly, a price surge may result as fearful traders compete to close their shorts. This is known as a short squeeze. A perfect example may be seen at the right edge of the above chart.

Analyzing the market for Short Sell Opportunities

Beyond technical analysis, it helps to know the Bitcoin space well. Certain past events have triggered major sell-offs:

1. Failure of major exchanges, eg. Gox collapse. 2. Hostile regulatory action in major countries, eg. "China bans Bitcoin" fake news. 3. Well-known developers throwing a quit fit, eg. Mike Hearn. 4. Heightened hard fork risks, eg. the recent anxieties over UASF before BIP 91

locked in (review the last couple of weeks on the above chart). 5. Delays or setbacks in widely-desired upgrades, eg. SegWit.

Events expected to have a very negative impact on price, should they ever occur, include:

1. Any contentious hard fork. 2. Breach of the cryptographic primitives used in Bitcoin (SHA256, secp256k1). 3. Discovery of Bitcoin code exploits which threaten wallet security or network

operation. 4. Hostile actions against Bitcoin mining companies by the Chinese government. 5. Movement in the first million or so bitcoins mined by Satoshi Nakomoto.

Events which, thus far, have had surprisingly little negative impact on price include:

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