Shorting Bitcoin: A Guide to Getting Started

A step-by-step guide to taking advantage of Bitcoin futures, margin trading and profiting from the gains and losses of Bitcoin.

Along with the feverish excitement around Bitcoin there is also a consistent hum of skepticism. If you’re on that side there are several ways to short Bitcoin. Short selling has always been a risky way to profit, but in the hands of advanced traders, it is a tactic that can prove very profitable.

Getting Started

Bulls might call you crazy given Bitcoin’s rocket like trajectory the last year, but if you’re set on the short, here’s how to get started. You have multiple options for shorting on Bitcoin:

CRYPTOCURRENCY EXCHANGE

The simplest way to short bitcoin is to use a crypto exchange. If you’re familiar with Bitcoin you’ve likely already set up an account at an exchange. GDAX, Kraken and Bitfinex are some prominent exchanges that allow shorting options.

FUTURES

As of December 10th 2017, you can short Bitcoin through futures trading. The launch of Bitcoin futures has the finance traditionalists interested. With futures trading, there is now a way to engage with Bitcoin through an established process like futures.

INDIRECTLY SHORT BITCOIN

You can also take a more creative route to short bitcoin by betting against exchange traded notes that are plugged in to cryptocurrency like Grayscale Investments Bitcoin Investment Trust (GBTC) or Bitcoin Tracker One. The caveat is that these funds do not always mirror the trajectory of Bitcoin.

CONTRACT FOR DIFFERENCE (CFD)

If you want to short Bitcoin without actually having to purchase it, go the CFD (Contract for Difference) route which is based on a derivative. Essentially you can enter into a contract with another party speculating on the price of Bitcoin. This method is available at CFD platforms like ThinkMarkets and eToro. Unfortunately, CFDs are not available in the USA.

MARGIN TRADING

You can borrow cryptocurrency from your broker to set a short position using margin trading. There is always a collateral requirement in margin trading and that percentage can vary. Bitfinex allows this type of trading and requires 30% equity. This type of trading is already risky in the traditional institution, so implementing it in conjunction with Bitcoin is a bold tactic.

Platforms That Allow You To Short Bitcoin

We’ve narrowed the results down to some of the best cryptocurrency platforms for purchasing Bitcoin futures, derivatives and trading on the margin. These platforms have been selected based on security, ease of use and options available to the user.

PlatformAvailable in the USMethods of PaymentOptions AvailableRatingsSite
WhaleclubYes• BTC Deposit• Futures
• Margin Trading
• Derivatives
BGet Started!
BitMexNo• BTC Deposit• Futures
• Margin Trading
• Derivatives
B-Get Started!
BitfinexNo• BTC Deposit
• Bank Transfers
• Margin Trading
B+Get Started!
CEX.ioYes• Credit Card
• Bank Transfers
• BTC Deposit
• Margin TradingAGet Started!
eToro
No• Credit Card
• Bank Transfers
• PayPal
• BTC Deposit
• Futures
• Margin Trading
C+Get Started!
BinanceYes• BTC Deposit• Margin TradingAGet Started!
GDAXYes• Bank Transfers
• BTC Deposit
• Futures
• Margin Trading
• Derivatives
BGet Started!
DeribitYes• BTC Deposit• Futures
• Margin Trading
• Derivatives
B+Get Started!
HitBTCYes• Bank Transfers
• BTC Deposit
• Margin TradingB-Get Started!

While some of these platforms do offer the ability to purchase cryptocurrency on their site through credit cards and PayPal, if you’re looking for the best exchanges for buying Bitcoin to fund your margin account, you can look here.

The inherent risk in all shorting

Shorting anything is riskier than going long. If you buy long the most you can lose is the amount you invested because an asset can’t drop below zero. If you buy short, however, you’re left exposed. An asset can skyrocket and you could lose all your money and even go into debt.

With the volatility and unprecedented spikes of Bitcoin, there really is no telling the risk of buying short on the cryptocurrency. You have to be bold and informed to take a short position on Bitcoin.However people can and do make money on shorting all the time. If the right strategy is used and with a little bit of luck, you can short Bitcoin to your advantage.

There are two key things one should consider when deciding to short sell Bitcoin:
  • The fees will be higher to short Bitcoin.
  • Bitcoin is unlike any other financial asset so applying traditional financial modeling to short cryptocurrency will not be useful.
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