How to short bitcoin

Ludvig
03.05.2022
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bitcoin short

Bitcoin, and other cryptocurrencies in general, are known for their high volatility. As most crypto enthusiasts know, this means that the price varies greatly. This means that it is risky to invest in cryptocurrency, because you basically do not know what will happen the next morning.

As a direct result of this, many people are trying to develop strategies that allow them to invest in cryptocurrencies without necessarily losing everything if the graph points downwards over a longer period of time. One of these strategies is to short cryptocurrency.

In this article, we will take a closer look at shorting cryptocurrencies, because what do you really do when you short cryptocurrency, how do you do it and is there anything specific you should keep in mind when you do it? We will use the cryptocurrency bitcoin as an example.

What does it mean to short Bitcoin?

First of all, we have to answer the following questions: What does it mean to short bitcoin? This is a term we immediately recognize from the English language, so this is a loanword from English that has been incorporated into english as a natural expression.

In English, “short” is an adjective. It describes a person or thing to express that he or she is “short” or small in stature, so this word can be used in different settings. In connection with cryptocurrency, you see that the word is used as a verb, which refers to something you do.

To understand a concept, it is important to put it in the right context, and we have now done so. Shorting bitcoin is therefore something you do, and it simply means that there is speculation as to whether the value of bitcoin will fall. And based on the volatility of the cryptocurrency, it is far from unnatural.

But what exactly is the purpose of shorting bitcoin? It is that the investor should be left with some form of profit despite the fact that the value of the cryptocurrency falls, because you will not do that if you do not short.

How to short Bitcoin?

You can short bitcoin in different ways. How this works is basically based on how you have proceeded to invest in cryptocurrency. Bitcoin can be shorted as follows:

  • Traditional shorting.
  • CDF contracts.
  • Swap deals.
  • Margin trader.
  • Futures contracts.

In connection with shorting bitcoin, no matter how you obtained it, you must open a bitcoin short position to be able to short bitcoin. And the more the value of bitcoin falls, the more the value of your bitcoin short position will increase.

In practice, shorting bitcoin is based on an agreement each individual investor makes with a brokerage house. The investor borrows bitcoin to be sold at market price, and then you fight bitcoin back to give it back to the broker afterwards. The profit (which you keep) is the difference between the sale and the purchase price.

How to shorten Bitcoin

Shorting bitcoin is a relatively straightforward process once you have familiarized yourself with how to do it. Below you will find a step-by-step guide that shows you how to shorten bitcoin.

  1. First and foremost, you have to register, ie open an account on a platform that allows you to short cryptocurrency, such as eToro. Remember that you will need to verify your account before you can start using it. In the worst case, this process will take a couple of days, but all in all this is not a very long time!
  2. Then you have to complete your profile . This includes telling about your experiences with financial products from before. This is something you have to answer, because the company is required to ask you about it. If you do not, you will not be allowed to continue.
  3. Once your profile is both verified and completed, you will need to make a deposit to your account. This means depositing money (traditional currency such as english kroner) that you will use to short bitcoin with. Which payment methods you can use will probably vary somewhat from platform to platform, but if you can use a bank card or PayPal then we would recommend you go for it.
  4. The last step in the process is to open a short bitcoin position . This is necessary to actually be able to short bitcoin. Then you just choose how you want the shorting of bitcoin to take place, as well as how much you want to short for, and then you press “open trade” when you are done with it.

As we mentioned later, you need to deposit money into your account. Brits probably deposit english kroner in their account. However, the platform may not support it, but you do not have to worry about it. Your currency is automatically exchanged for a currency that the platform accepts!

Can you short cryptocurrency other than Bitcoin?

In this article, we have used bitcoin as an example, and then there may be some who wonder how far it is possible to short other types of cryptocurrency. Or is it only bitcoin that can be shorted?

But of course it is not just bitcoin that can be shorted. You can also short cryptocurrencies such as ethereum , and that process is as simple as shorting bitcoin because the processes are exactly the same. Only the cryptocurrency varies in this case.

How to short bitcoin and other options :

Do you risk anything by shorting Bitcoin?

As most people know, investing in cryptocurrency is associated with a risk due to the high volatility. But is shorting bitcoin (or another cryptocurrency) an equally big risk?

The answer to this question is simply yes! It is important to remember that high volatility does not necessarily mean a fall in prices – it can also mean a price increase, and then you will lose a good deal of money by wondering whether the price will fall.

You may therefore want to think carefully through the case before jumping into it. Because maybe it will not be most advantageous to short bitcoin? Although we have used bitcoin as an example here, you must remember that there are many other cryptocurrencies to choose from!

Author Ludvig

Ludvig har lang erfaring med kjøp og salg av kryptovaluta. De senere årene har han tatt det til et nytt nivå og prøver å leve av kryptovaluta trading. Han følger godt med på markedet og har opparbeidet seg god kompetanse på teknisk analyse mm. Vi er veldig glad for å ha Ludvig med på laget, og er det noe du lurer på angående kryptovaluta er dette mannen du spør!