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A guide for short-selling Bitcoin

By Guardian Nigeria
14 November 2022   |   2:30 am
Bitcoin was created as an alternative form of currency by Satoshi Nakamoto. Over the thirteen years of this electronic currency's existence, it has gained global popularity and adoption as more people become interested. Moreover, established institutions and companies like Microsoft also adopt this virtual currency. Many view Bitcoin as a haven in a global economy…

In this photo illustration, a visual representation of the digital Cryptocurrency, Bitcoin is displayed in front of the Bitcoin course’s graph. Photo: AFP

Bitcoin was created as an alternative form of currency by Satoshi Nakamoto. Over the thirteen years of this electronic currency’s existence, it has gained global popularity and adoption as more people become interested. Moreover, established institutions and companies like Microsoft also adopt this virtual currency. Many view Bitcoin as a haven in a global economy that is volatile since any government does not control this virtual asset.┬áIf you are into Bitcoin trading, you may visit https://bitql.app/.

This virtual currency is notoriously volatile and hence does not have a stable value. However, the value of this electronic currency has continued to increase over the past years.

On the other hand, short selling is an investment technique for making money when the price of this digital currency drops. When short-selling this virtual currency, one borrows Bitcoin and sells it immediately at its current price. Later, you purchase this digital currency to pay back the person or company you borrowed.

However, when purchasing this electronic currency, the prices will have dropped, so buying the Bitcoins that one needs to pay back can be cheaper. Eventually, you can keep the other cash as profit.

When to Short Sell Bitcoin

Short-selling this digital money is trading against a long-term upward trend, and the longer the trend remains, the riskier short-selling becomes. However, the maximum profit potential of a short is limited to the price of this electronic currency, whereas buyers have no limit on their profits.

Moreover, short-selling this electronic currency at the top of a bull run is tricky since you can stop multiple times as this virtual currency keeps rising.

When to Short-Sell Bitcoin

To short-sell this virtual currency, you must contact a trading platform or agency and place a short-sell order. The agency or platform will then sell this virtual asset from their supply based on the assumption that you will repay them with an equal amount of this virtual currency in the future.

The firm or platform that loaned you Bitcoins can recall the assets at any time when short-selling this electronic currency. However, it should provide you with only short notice. Therefore, ensure you read the rules and regulations for covering any assets you short sell.

With the Bitcoin market fluctuating drastically, the price of this virtual money can swing wildly, putting you at risk. Moreover, short-selling can be riskier if the lender calls in the assets before the prices drop.

Short-Selling Via a Bitcoin Exchange

There are different ways to short-sell this digital currency, including via an exchange. These Bitcoin exchanges offer short-selling options, and some even allow leveraged shorting. You leveraged shorting means you can borrow and use more money from your own business to purchase the Bitcoins you want to short.

Direct Short-Selling Bitcoin

Direct short-selling of this digital currency is one of the most accessible types of short-selling this electronic currency. Direct short-selling of this electronic currency involves one selling off the existing Bitcoin at a price they are comfortable with totally. Eventually, as a short seller, you hope that the value of this digital money drops further and you can purchase this electronic currency at a lower price.

Margin-Trading Bitcoin

Many people start short-selling this digital currency using a margin trading platform dedicated to this digital money. However, when practicing margin trading, you borrow money from a broker; make the trade hoping your bet pays off.

The Bottom Line

As with any similar investment, we are learning how to practice short selling is not as easy as it sounds. Therefore, research thoroughly about Bitcoin short-selling and be willing to take up some risks.