Added: 07.10.2019
Edited: 16.12.2021

How to Short Sell Bitcoin - Useful Guide for Beginners

Cryptocurrency market is developing, that is why there appearing more and more ways to get profit. Some of them are easy and can be used by newcomers, and other ones are only for professionals because they require a lot of experience and are a bit risky.
Today we are going to talk bout one more relatively new way of earning - Bitcoin shorting.

What Is Bitcoin Shorting?

how to short bitcoin

Bitcoin shorting means that a trader sells the asset, hoping that it will be redeemed soon for a lower price.  When investors short sell bitcoin on a crypto exchange, they sell a BTC they don’t possess.
To do that, they borrow the asset from exchange margin lenders while the position is open.
Here is an example: you sell borrowed bitcoin short when the price is $10,000. The price drops to $8,000. You repurchase the BTC for $8,000 to return it to the lender. This way you make $2,000 ($10,000 - $8,000) out of thin air!
But if you don’t want to waste your time and energy on learning how to short bitcoin in US and where to short Bitcoin, you can always turn to crypto bots. The whole point is that you can still create your short bot (or choose an existing one) and simplify the trading process.
One can also check these useful pieces of code, we mean crypto bots right away.
As soon as you are ready with crypto bots, or know how to make bitcoin price predictions, come back here because we are ready to begin!

How to Short Bitcoin with Margin Trading?

How to Short Bitcoin with Margin Trading

There is no better way to learn how to short sell Bitcoin than to use a clear example.
Let’s assume that you foresee a potential decrease in Bitcoin price from $10,000 to $8,000, the next support level. You transfer funds to the broker’s margin account.
But considering that it’s impossible to sell what you don’t possess, the system automatically sends the necessary amount of assets to your account once you open a short bitcoin position.
Then you sell it and voila, you make money on the difference!
However, you will need to pay a specific fee for Bitcoin shorts, which is calculated per every day of holding cryptocurrency. If the Bitcoin exchange doesn’t have free assets, the position is automatically executed in the lending section from other market participants at current rates.
It is impossible to learn about short selling Bitcoin without understanding the principles of interest rates on loans, so you need to learn the requirements of a particular exchange before doing Bitcoin shorts. Every exchange has its loan interest, but usually, these rates are rather low, around 0,002% daily for a borrowed Bitcoin. When you cover the position, you are charged a certain fee. If you have been holding a position for more than a day, your fee equals a daily fee multiplied by the number of days.
You may ask:
Can I short Bitcoin on all the exchanges?
Yes, you may do it on almost all of them but when you are dealing with crypto exchanges to short Bitcoin and learning how can you short sell Bitcoin on Coinbase Pro, we advise paying attention to one thing:
If you participate in margin trading, you will need to pay the daily fee no matter whether you going short on Bitcoin or not. That is why it makes sense to enter margin trading Bitcoin only with a full commitment of opening a short position.
Otherwise, we recommend transferring funds to an exchange, so you won’t have to pay a fee for merely storing borrowed assets.

How to Short Bitcoin with Futures?

How to Short Bitcoin with Futures

When Bitcoin futures emerged, another way of short selling Bitcoin appeared.

So what is the method of short selling Bitcoin with futures’ help?
Let’s start with a brief definition:
The future is a contract, which allows you to get cryptocurrency or assets once the contract is closed, for the price you have sold them. 
There are two types of futures: settlement and delivery ones, and you should know the difference if you want to learn how to short bitcoin on Binance Futures successfully.
At the moment, the CME exchange trades only settlement futures. This means that you get not the asset according to the futures but the price difference between buying and selling. Similarly, you get such a difference when opening a short bitcoin position.
The futures market offers so-called guaranteed security. When you buy Bitcoin futures, you only pay 2-10% of the actual Bitcoin price.
Futures trading already includes leverage, so we recommend trading futures only if you have at least six months of crypto trading experience, or if you know how and where can you short bitcoin and have studied all peculiarities of trading on the futures or Bitcoin options market.

Bitcoin Shorting with Leverage

bitcoin shorting with leverage

Now, when you are familiar with definitions, let us learn exchanges to short bitcoin on the example of a Bitfinex exchange. Apart from short trading, you can also "play" on crypto exchange and increase your capital with the help of margin trading.
For example, you want to open a short bitcoin position having $10,000 on your account. For a short trade, you need to transfer assets on the exchange margin account.
Keep in mind, if you have $10,000 you’ll be able to open bitcoin shorts only on the same sum.
However, you can increase your trading capital up to $33,000 and then open a short position on this amount.
Thus you can get an x3,3 leverage.
Don’t forget that you’ll need to pay a daily fee for additional borrowed funds and a fee for granted leverage. These are two different fees!
The lending rate can be found in the Bitfinex section ‘Margin funding.’ Luckily, the exchange website has plenty of useful information in open access, so you won’t have any problems learning how can you short bitcoin on Bitfinex.

What Is the Main Target of Shorting Bitcoin?

What Is the Main Target of Shorting Bitcoin

Before you start asking yourself, ‘How do I short bitcoin?’ you need to understand what your main goals are.
Opening bitcoin shorts pursues two main goals: speculative selling and long-position hedging.
For example, you have bought Bitcoin and store it in one of hot or cold crypto wallets offered by crypto exchanges.
You see that the price is going down. You can hedge your Bitcoin by opening a short bitcoin on a cryptocurrency or a futures Bitcoin exchange. Thus, you can fix the result of your investments. Once the Bitcoin price starts to grow, you cover a short position and simply hold your Bitcoin.
We recommend using this strategy only to experienced traders, who have not only mastered how to short bitcoin Robinhood but also can detect when Bitcoin price will reverse.
In case you are opening bitcoin shorts to speculate and make profits on the difference, you can choose one of the below tactics.
The first one should be used only in counter-trend strategies. They are applied in a bull market.
A counter-trend short position is a position, which is opened against growing cryptocurrency.
For example, Bitcoin has increased from $10,000 to $13,000, and you see that the price may decrease to $11,000. At a particular moment, following a clear BTC shorts strategy, you short bitcoin to earn profits on a $2,000 movement.
However, you need to be very attentive when you conduct counter-trend trades. If you fail, you should cover the position immediately based on the stop that you have predefined. The whole point of mastering short selling Bitcoin is to make a quick but profitable decision.
The second tactic is used in a bear market. If Bitcoin has peaked and reversed, you need to conduct a short sell to benefit from a rapid decrease in the price. The distinguishing feature of this tactic lies in the fact that you use long-term strategies to maximize your profits during Bitcoin fall on a bear market.
And how do you short bitcoin?

Bitcoin Shorting on Bull Market

Bitcoin Shorting on Bull Market

The best way how to short bitcoin on Kraken during the bull market is to use only counter-trend strategies.
However, we don’t recommend them to novice traders, because they require extreme discipline and fast reaction (although these qualities are necessary any time during a short Bitcoin).
The best place to apply shorting Bitcoin strategies is the bear market. Price usually goes down, and it makes the strategy profitability more likely.
At this market stage, it is advisable to apply technical bear figures – triangles and reverses pennants.
Such reversal figures as “head and shoulders,” “double top,” and “V-shape turnaround” also proved their efficiency during Bitcoin shorts.
As you see, it is not enough to understand basic principles if you want to know ways to short Bitcoin: it is essential to know all the strategies on how to make money trading bitcoin and to apply them skillfully.

When Is the Best Moment to Short Sell Bitcoin?

If you read the article carefully, you have probably caught that bitcoin short trades are made against a long-term uptrend. Simply put, the longer the downward trend persists, the better for the corresponding position to open for a price fall.
However, time can play against a trader – a long downward trend makes an open trade riskier. Sooner or later, the price may rebound and show a sharp rise.
Remember that the maximum profit potential for a bitcoin short position is limited by the bitcoin price itself.
If you carefully study the historical charts of the coin price, you can see that it can take significant time and effort on the part of the bulls to form an upward price trend. In the meantime, bearish trends used for short sell bitcoin are sharper and rarely prolonged.
Now you understand the basics of the market mechanisms that influence the price of a coin and see how to short sell bitcoin with maximum profit. However, how to accurately determine the exact moment when bitcoin short selling can bring the maximum benefit?

Market Events That Signals the Need for A Bitcoin Short Sell

Some seasoned traders claim that technical analysis is the most reliable and proven way to predict the price of BTC. Meanwhile, other equally successful investors actively use information that can provoke a rise or fall in the cost of the coin.

Market Events That Trigger a Sharp Selling

This category includes the following situations:
  • Cyberattacks on large cryptocurrency exchanges
  • Restrictive measures by government regulators
  • New about notable specialists who left the Bitcoin development team
  • Delay or postponement of essential updates

Risks Associated with Short Selling Bitcoin

Safetrading experts should warn you that short selling bitcoin is a risky business. The thing is that with traditional investments in crypto assets, your losses can be limited solely to the amount of money you have invested.
For example, if you invested $1000 in a crypto coin and it has depreciated sharply, then your losses will be $1000 and not a cent more.
In the meantime, a bitcoin short sell can significantly increase the potential loss that exceeds the initial investment amount. Please note that the coin has incredible volatility, and the price of the asset can instantly rise or crash for no apparent reason.
Here's another excellent example for you:
Imagine that you performed a bitcoin short sell procedure for $100, while the coin's price was only $10. Simply put, you have completed the process for selling 10 coins without coverage.
Let's say you have not yet had time to redeem the coins, and nevertheless, you still have to pay 10 coins to the owner of the asset.
Let's say the coin price has skyrocketed to $4,000, which is quite natural with such a highly volatile asset. In this situation, the 10 coins that you have to return to the owner will cost $40,000. It looks like short selling bitcoin is a risky move.

Short Covering

If you want to learn how to short Bitcoin in the United States, you should understand not only its positive aspects but also all the troubles such as trading can withhold.
One of its most serious drawbacks is that in case of unpredictable circumstances, you risk losing your capital. When a Bitcoin is bought without leverage, the money is lost only when the price equals zero, which is almost impossible now. It is a significant advantage for ordinary investors, which allows them not to fix losses but to wait for price growth and to make a profit. Only time is the trader’s foe.
On the contrary, during Bitcoin shorts, you use margin trading Bitcoin, which includes the position liquidation risk. Don’t forget that compared to going long, you pay a daily fee for going short.
And if you trade on a borrowed capital, you also pay a leverage fee, and the position liquidation will be closer in price than if you buy on your money. When a short position is opened, Bitcoin exchange gives you a price calculation at which your position will be cleared, and you will get a margin call.
Here's a piece of advise from top tradingview authors:
When you decide to short Bitcoin, it is necessary to consider all your options and to come up with the most suitable strategy.

Final Words

Bitcoin price is somewhat volatile, and many market analysts claim that it will continue to rise and fall on a regular basis.
That is why learning methods of short selling Bitcoin is one of the most urgent tasks that any trader is facing at the moment.
Today we have discussed everything you need to know about where and how can you short Bitcoin: its definition and importance, pros and cons, as well as shorting on bull and bear markets.
We have also discussed Bitcoin shorts through the prism of margin trading and futures.
At this point, you are probably no longer afraid to short Bitcoin and know how to treat it right.
If you have any questions left on how to sell Bitcoin short, feel free to ask!