What Does Shorting Crypto Mean?
Short selling is a way to make money by betting against the price of cryptocurrencies. Using this method, you borrow someone else’s asset and sell it immediately in the market. When the price drops, you can buy back that asset at a lower value and return it to the owner (returning them their own asset). You can then profit from the difference between the higher and lower price. Generally speaking, shorting is done to make money off of a downside move in an asset’s value.
Why Short Crypto?
Since January 2017, there has been a lot of hype about crypto/blockchain technology and currencies like bitcoin or Ethereum. Over this period, the price of these cryptocurrencies (and others) has increased substantially. When investors bet on something to go up in value, that is known as an uptrend or bull market. All cryptocurrencies are currently in a bull market.
There are a number of crypto to fiat exchanges out there, making it possible to convert your digital assets into traditional currency. This can be useful if you need to make a purchase in fiat currency, or if you want to cash out your crypto holdings. Here’s a look at some of the most popular crypto to fiat exchanges:
If you truly believe in the future potential of blockchain technology and cryptocurrency, then it may make sense for you to invest now. However, most traders (and even some investors) use short selling as a way to make money in an uptrend market. The reason for this is twofold:
New developments are happening every day on how blockchain technology will have a bigger impact on how society operates. There are also greater opportunities today for blockchain companies/cryptocurrencies to have more real-world applications that are finding more mainstream attention. Increase in the price of cryptocurrencies over time.
One thing some investors may not understand is how short selling works. Don’t worry it’s very simple! Just remember how you used to borrow your friend’s comics, sell them for a few dollars, and then buy them back when you had the money.
How to Short Crypto
How to short crypto? There are four steps involved:
Locate an exchange platform/currency pair where short selling is allowed. Locate how much USDT (Tether dollars cryptocurrency that is pegged to USD) you need to open a position. Locate how many BTC you can short sell for this amount of USDT. Set your price and how much money you want to make per point move in the market.
Example of How Shorting Crypto Works.
Let’s say a trader goes on a popular exchange platform and opens a position for how much USDT that trader wants to use. For this example, we will say that the exchange only allows you to short sell 0.5 BTC (Bitcoin) at a time. If you want to make an amount X of money off of your trade, then set how much profit per point move in the price you want. This is how much you are betting will move in your favor, so be careful how much you bet!
Most trading platforms have the option to use either how much BTC or USDT to open a position. Again, for this example, we will say that the exchange only allows the trader to short sell 0.5 BTC worth of USDT at a time.
Now that the position is open, the trader can use an order book to set their price to sell this 0.5 BTC of USDT. You are now in a shorting position. If you think prices will drop in the market soon, then wait for your trade to go through and start counting how much money you can make. You can also check the order book to see if it’s a good time to sell.
For example, let’s say that the price of BTC falls and your short-selling position is profitable:
You end up making 0.25 BTC (how much you bet minus how much you had to pay for USDT).
What to Keep in Mind
The key factor here is that you have to be comfortable with how much money you want to spend on the fees to open a position. For example, if BTC prices went up by 20% overnight, then your shorting trade would not be profitable. You would have lost more money than you made since the price increase was not enough for your trade to go through.
Also, if you are short selling BTC at the moment it could be difficult to make a profit because prices went up so much in the past few weeks. Shorting positions can also go against you. It may be the best time to hold off on opening any new positions until the cryptocurrency market sees some downward movement.
If you believe in the future potential of blockchain technology and cryptocurrency, then it may make sense for you to invest now. However, most traders (and even some investors) use short selling as a way to make money in an uptrend market. The reason for this is twofold: There are new developments every day in the crypto space. The more people use a cryptocurrency, the more its price will increase over time.
No one knows what the future holds for cryptocurrencies. It’s possible that these technologies have long-term potential and may even change society as we know it today. However, there is also a chance that prices go down to zero because the technology never catches on.
Regardless, it’s important to understand what you are betting on before opening any type of cryptocurrency position.