Shorting Bitcoin is borrowing the cryptocurrency, selling it, and buying it back later when prices are lower. The number of venues and ways in which you can short Bitcoin has multiplied with the cryptocurrenc๊y’s increasing spotlight in mainstream finance.

Here are🌌 some ways 🌞that you can go about shorting Bitcoin.

1. Margin Trading

One of the easiest ways to short Bitcoin is through a cryptocurrency 澳洲幸运5官方开奖结果体彩网:margin trading platform. Many exchanges and brokerages allow this type of trading, with margin trades allowing investors to “borrow” money from a broker in o🌱rder to make a trade. It’s important to remember that margin involves leverage or borrowed money, w🌼hich can increase profits or exacerbate losses.

Many Bitcoin exchanges allow margin trading at this stage. Kraken and Binance are some popular options for this strategy.

2. Futures Market

Bitcoin, like other assets, has a 澳洲幸运5官方开奖结果体彩网:futures market. In a futures trade, a buyer agrees t𝓡o purchase a security with a contract, which specifies when and at what price the security will be sold.

If you buy a futures contract, you are betting that the price of the security will rise; this ensไures that you can get a good deal on it later. If you sell a futures contract, it suggests a bearish mindset and a prediction that Bitcoin will decline in price. In this context, you can short Bitcoin by purchasing contracts that bet on a lower price.

Bitcoin futures trading took off around the run-up in cryptocurrency prices at the end of 2017. It is available on a wide variety of platforms now. You can short Bitcoin futures at the 澳洲幸运5官方开奖结果体彩网:Chicago Mercantile Exchange (CME), the world’s biggest derivatives trading platform, and on some cryptocurrency exchanges. Bitcoin futures can be purchased or traded on popular exchanges like Kraken or BitMEX and can also be found at 澳洲幸运5官方开奖结果体彩网:popular brokerages such as eToro.

You can also trade perpetual Bitcoin futures on platforms like BitMEX if 🥀you have access to them. Perpetual futures do not have closing dates, allowing traders to set and forget positions or not have to worry about rolling them.

3. Binary Options Trading

Call and put options also enable trade🦹rs to💟 short Bitcoin. If you wish to short the currency, you could:

• Buy a put option: Buying a put option gives you the right, but not the obligation, to sell the bitcoin at a specified price (the 澳洲幸运5官方开奖结果体彩网:strike price).
• Sell a call option: Selling a call option gives you the obligation to sell the bitcoin at the strike price if the buyer chooses to exercise it.

In both cases, you pr🦋ofit when Bitcoin’s price falls below the strike pಌrice before the option expires.

You can also profit from buying a call option (which gives you the right, but not the obligation, to buy the bitcoin at the strike price) or selling a put option (which gives the buyer the right, but not the obligation, to make you buy the bitcoin at the strike price), but these are considered 澳洲幸运5官方开奖结果体彩网:long positions becaus𒁏e you profit when Bitcoin’s price rises above the strike price before the option expires.

Binary options are available through several offshore exchanges, but the costs (and risks) are hig꧟h. One of the advantages of using binary options trading over futures is thℱat you can limit your losses by choosing not to execute your options. Thus, your losses are limited to the price you paid for the put options.

Popular venues for trading options are Deribit and OKX.

4. Prediction Markets

澳洲幸运5官方开奖结果体彩网:Prediction markets—while not necessarily shorting—are where you place bets on the outcome of events. Prediction markets in crypto are similar to those in mainst𓄧ream markets. Parties can create an event to make a wager based on the outcome.

You could, therefore, predict that Bitcoin will decline by a certain margin or percentage, and if anyone takes you up on the bet, you’d🌺 stand to profit if it comes to pass.

Popular crypto prediction markets are GnosisDAO and 澳洲幸运5官方开奖结果体彩网:Polymarket.

5. Short-Sell Bitcoin

Though this strategy might not appeal to all investors, those with the stomach can reap gains if their bet against Bitcoin pricing succeeds. If your brokerage or exchange allows it, you could borrow some Bitcoin and sell t🍷hem at a price you are comfortable with. When the price drops, repurchase some and pay back t𒊎he exchange. Of course, if the price does not adjust as you expect, you could lose money in the process.

If the price goes up (instead o🅰f down, as you had hop🙈ed), you could end up with significant losses.

6. Using Bitcoin CFDs

A contract for difference (CFD) is a fiღnancial strategy that pays out money based on the price differences between the open and closing prices for settlement. Bitcoin CFDs are similar to Bitcoin futures in that they are essentially bets on the cryptocurrency’s price.

When you purchase a CFD predicting that prices will decline, you are betting against Bitcoin. This is not shorting Bitcoin, but it is similar in that༺ you’re acting on a belief that prices will drop.

CFDs have a more flexible settlement tenure than Bitcoin futures, which have predetermined settlement dates. Additionally, in certain Bitcoin CFD markets, traders can enter into a contract based ꧙on Bitcoin’s performance or its performance relative to fiat currency or another crypto.

7. Using Inverse Exchange-Traded Products

Inverse exchange-traded products (ETPs) are instruments that use leverage and other techniques to flip the returns an underlying asset generates. They are sim𓂃ilar to futures contracts and are used in conjunction wit🎀h other derivatives to produce returns.

Until January 2024, the only exchange-traded product available to U.S. residents was ProShares’ Short Bitcoin Strategy ETF (BITI). That month, the SEC approved 11 spot Bitcoin ETPs that can be used for shorting Bitcoin.

Factors to Consider While Shorting Bitcoin

As with any strategy related to cryptocurrencies, shorting Bitcoin involves enormous risk. There are several aspects ♎you should consider while shorting Bitcoin.

Bitcoin Price Is Volatile

Most avenues to short Bitcoin depend on 澳洲幸运5官方开奖结果体彩网:derivatives. These derivatives are based on pricing; 澳洲幸运5官方开奖结果体彩网:fluctuations in the cryptocurrency💦’s price have a domino effect⛦ on investor gains and losses.

For example, Bitcoin futures mimic spot price changes, meaning they cannot be used as an effective hedge against an investment in actual Bitcoin. Similarly, options trading in Bitcoin can multiply losses due to the underlying cryptocurrency’s price 澳洲幸运5官方开奖结果体彩网:volatility.

Bitcoin, as an Asset, Is Risky

Price is 🅘just one of several risks you will have to evaluate while shorting the cryptocurrency. Compared to other, more established assets, Bitcoin is new. It has been around only since 2009. Therefore, there isn’t sufficient data or information for investors to make an educated decision about its workings or feasibility as an asset.

While established platforms like CME are safer and guarantee execution for Bitcoin derivatives, ൲new platforms🐼 might start off “clunky” and be more susceptible to hacks.

The Regulato𒈔ry Status for Bitcoin Is Still Developing

Regulations across geographies are still being developed and implemented. The United States has made strides, as several key court cases have concluded and several Bitcoin investment instruments have been approved. The European Union (EU) published its Markets in Crypto-Assets legi꧅slation, which guides the bloc’s members in their cryptocurrency dealings.

There are several leading Bitcoin trading platforms, such as Deribit, that are not available t꧟o American investors due to regulatory compliance issues. This poses issues for those in the U.S. who wish to trade certain ꩵinstruments or derivatives offered on exchanges that are not regulated by U.S. authorities because if they trade on them, they are not protected.

Knowledge of Order Types Is a Must

Before undertaking a short position in Bitcoin, you should brush up on your knowledge of different order types. They can help limit losses if the price trajectory does not go in the direction that you initially bet—for example, using 澳洲幸运5官方开奖结果体彩网:stop-limit orders while trading derivaꦡtives can curtail your ൲losses.

The Bottom Line

Shorting Bitcoin is a viable option for traders comfortabl༒e with the risks. Several exchange-traded products and strategies are available for shorting Bitcoin. Before you begin, it helps to learn about order types and to practice your strategies.

The comments, opinions, and analyses expressed on Investopedia are for informational purposes only. Read our 澳洲幸运5官方开奖结果体彩网:warranty and liability disclaimer for more info. As of the date this article was written, the author owns BTC and XRP.