The last few years have been a roller-coaster for cryptocurrencies. Undoubtedly, cryptocurrencies have lost their charm in the past few months because of high inflation and interest rates. But nothing is permanent in the world of digital currencies. However, if you still feel any upcoming crashes in the crypto world, then consider shorting cryptocurrencies.
What is Crypto Shorting?
The move to sell cryptocurrencies like Bitcoins when their price is high and buy them again when the price goes down is known as crypto shorting. The core agenda of this entire practice is to get some benefit if you are expecting any crypto crash in the upcoming days.
Crypto investors can benefit from price fluctuations before and after the crash. By the way, when prices go down, you can again hold the crypto with good profit.
Methods to Short Cryptocurrencies?
After understanding what exactly crypto shorting is, we can proceed further. So, here are the best ways to short cryptocurrencies in 2023:
Crypto Margin Trading
This method is considered the easiest way of shorting cryptocurrency and allows borrowing money on margin. Likewise, you have $200 in your account, and you have to buy a $1k value of Bitcoin, then you get the remaining amount from an exchange or brokerage.
In case you get a profit, you would be able to pay back the borrowed money with good money in hand, but in case you get a loss, it is your duty to pay the interest rate with borrowed money. Again, it is a complicated option, especially if you are a novice in this industry.
Futures Markets
It is quick and easy to purchase and sell digital coins on a specific date, time and against a certain price with the futures market. You can consider them legal contracts for selling or buying bitcoins and cryptocurrencies.
Although short cryptocurrencies with futures market through renowned finance companies like CME Group are seamless to use but this process is still complicated. According to crypto experts, you should avoid this method if you are new to Bitcoin and other currencies. However, it could be a good venture for seasoned crypto traders.
Binary Options
Binary options are considered relevantly safer than risky ways of shorting cryptocurrencies, but you can’t ignore the chances of fraud and complexities here. This approach will enable you to sell your coins at the current price, and offshore exchanges can assist you in conducting this venture.
With binary options trading, you will face fewer losses than the futures market because you only have to pay for provided options.
Prediction Markets
It is another less safe method of shorting cryptocurrencies because it depends on market speculations. You can speculate on an upcoming event that can change the prices and pony up with another trader or investor on this matter. In case you prove right, you have a chance to get some profit.
In this regard, you should join credible medication markets. Otherwise, it wouldn’t be a good experience for you.
Reasons to Short-Sell Cryptocurrencies
Here are the core reasons for selling cryptocurrencies:
Valuation
If the price of a particular currency, such as Bitcoin, is overvalued and this price bubble will burst soon, then you can think about shorting Bitcoin. Especially if you believe in valuation statistics, then you must consider it.
Reducing Risk
On the other hand, if an investor gets some news and knowledge about an upcoming decrease in the value of its holding crypto investment. For example, if he feels a future reduction in the market value of Bitcoin, he can surely overcome the risk factor through short selling. Also, investors can get some profit when they buy the stock again at a low price.
Volatility
There is no doubt that cryptocurrencies are volatile in nature. Likewise, we noticed a growth of 10% in the global market of cryptocurrencies in 2020. It was massive compared to 2019. On the contrary, this industry faced a sharp decline in 2022. Yes, only Bitcoin devalued to 60% in 2022.
In other words, this volatile nature of cryptocurrencies can also be a reason for their short selling. Therefore, if you are smelling something like this, you can go with shorting crypto.
Skepticism
The questioning attitude of digital currency experts is another reason for the shortage. Probably, all of you would agree these decentralized currencies are always in hot water. Mainly, investors and traders have an eye on the latest happenings, technological advancement and modifications in blockchain technology.
Potential Risks of Short Selling Crypto
You should also be aware of short-selling risks that are involved here. Therefore, we are mentioning a few of them below:
Firstly, if you use a margin trading method and buy Bitcoin for $10k and the next day, it reduces to $5k. You will have to face a loss of $5k with the interest rate and further expenses. So, choose short-selling methods wisely.
Similarly, the increase in the price of crypto stocks after short-selling could also be a disastrous scenario. You can’t underestimate these issues. It could be very dangerous if the market decides to go with a capped price.
In short, this article shares the most practical ways to short cryptocurrencies with readers. However, with these methods, you must read the risks involved here and why you should apply this approach.
