7 Ways to Short Bitcoin

Shorting Bitcoin is borrowing the cryptocurrency, selling it, and buying it back later when prices are lower. The number of venues and ways in which you can short Bitcoin has multiplied with the cryptocurrency’s increasing spotlight in mainstream finance. Here are some ways that you can go about shorting Bitcoin.

Key Takeaways

• Many investing options are available for those looking to short Bitcoin.
• Shorting Bitcoin is borrowing and selling Bitcoin, hoping that prices will go down so you can buy Bitcoin at a lower price to repay the loan and profit.
• Derivatives such as options or futures can give you short exposure, as can margin facilities available on certain crypto exchanges.
• The price of Bitcoin is volatile and prone to sudden increases or decreases. Selling short is risky in any asset but can be particularly dangerous in crypto markets.

1. Margin Trading

One of the easiest ways to short Bitcoin is through a cryptocurrency margin trading platform. Many exchanges and brokerages allow this type of trading, with margin trades allowing investors to “borrow” money from a broker in order to make a trade. It’s important to remember that margin involves leverage or borrowed money, which can increase profits or exacerbate losses. Many Bitcoin exchanges allow margin trading at this stage—Kraken and Binance are some popular options for this strategy.

2. Futures Market

Bitcoin, like other assets, has a futures market. In a futures trade, a buyer agrees to purchase a security with a contract, which specifies when and at what price the security will be sold. If you buy a futures contract, you are betting that the price of the security will rise; this ensures that you can get a good deal on it later. If you sell a futures contract, it suggests a bearish mindset and a prediction that Bitcoin will decline in price. In this context, you can short Bitcoin by purchasing contracts that bet on a lower price.

Bitcoin futures trading took off around the run-up in cryptocurrency prices at the end of 2017. It is available on a wide variety of platforms now. You can short Bitcoin futures at the Chicago Mercantile Exchange (CME), the world’s biggest derivatives trading platform, and on some cryptocurrency exchanges. Bitcoin futures can be purchased or traded on popular exchanges like Kraken or BitMEX and can also be found at popular brokerages such as eToro.

You can also trade perpetual Bitcoin futures on platforms like BitMEX if you have access to them. Perpetual futures do not have closing dates, allowing traders to set and forget positions or not have to worry about rolling them.

Note

Coinbase began offering Nano Bitcoin Futures trading on June 27, 2022. The contract sizes are 1/100th of a Bitcoin, have a tick value of $.05 per contract, and minimum price increments of $5.

3. Binary Options Trading

Call and put options also enable traders to short Bitcoin. If you wish to short the currency, you could sell a put option. Selling a put option means the buyer has the right to make you buy the bitcoin at a specified price, but not the obligation. Purchasing a call option gives you the right to buy a bitcoin at a specific price, but not the obligation.

Binary options are available through several offshore exchanges, but the costs (and risks) are high. One of the advantages of using binary options trading over futures is that you can limit your losses by choosing not to execute your options. Thus, your losses are limited to the price you paid for the put options. Popular venues for trading options are Deribit and OKX.

4. Prediction Markets

Prediction markets—while not necessarily shorting—are where you place bets on the outcome of events. Prediction markets in crypto are similar to those in mainstream markets. Parties can create an event to make a wager based on the outcome.

You could, therefore, predict that Bitcoin will decline by a certain margin or percentage, and if anyone takes you up on the bet, you’d stand to profit if it comes to pass. Popular crypto prediction markets are GnosisDAO and Polymarket.

You can learn passive and active investing strategies through a crypto trading course.

5. Short-Sell Bitcoin

Though this strategy might not appeal to all investors, those with the stomach can reap gains if their bet against Bitcoin pricing succeeds. If your brokerage or exchange allows it, you could borrow some Bitcoin and sell them at a price you are comfortable with. When the price drops, repurchase some and pay back the exchange. Of course, if the price does not adjust as you expect, you could lose money in the process.

If the price goes up (instead of down, as you’d hoped), you could end up with significant losses.

6. Using Bitcoin CFDs

A contract for differences (CFD) is a financial strategy that pays out money based on the price differences between the open and closing prices for settlement. Bitcoin CFDs are similar to Bitcoin futures in that they are essentially bets on the cryptocurrency’s price. When you purchase a CFD predicting that prices will decline, you are betting against Bitcoin. This is not shorting Bitcoin, but it is similar in that you’re acting on a belief that prices will drop.

Important

Brokerages and exchanges are not permitted to offer CFDs to U.S. residents because they are traded over the counter and are not regulated by the Securities and Exchange Commission.

CFDs have a more flexible settlement tenure than Bitcoin futures, which have predetermined settlement dates. Additionally, in certain Bitcoin CFD markets, traders can enter into a contract based on Bitcoin’s performance or its performance relative to fiat currency or another crypto.

7. Using Inverse Exchange-Traded Products

Inverse exchange-traded products are instruments that use leverage and other techniques to flip the returns an underlying asset generates. They are similar to futures contracts and are used in conjunction with other derivatives to produce returns. Until January 2024, the only exchange-traded product available to U.S. residents was ProShares’ Short Bitcoin Strategy ETF (BITI). That month, the Securities and Exchange Commission approved 11 Spot Bitcoin ETPs that can be used for shorting Bitcoin.

Factors to Consider While Shorting Bitcoin

As with any strategy related to cryptocurrencies, shorting Bitcoin involves enormous risk. There are several aspects you should consider while shorting Bitcoin.

Bitcoin Price Is Volatile

Most avenues to short Bitcoin depend on derivatives. These derivatives are based on pricing; fluctuations in the cryptocurrency’s price have a domino effect on investor gains and losses.

For example, Bitcoin futures mimic spot price changes, meaning they cannot be used as an effective hedge against an investment in actual Bitcoin. Similarly, options trading in Bitcoin can multiply losses due to the underlying cryptocurrency’s price volatility.

Bitcoin, As an Asset, Is Risky

Price is just one of several risks you will have to evaluate while shorting the cryptocurrency. Compared to other, more established assets, Bitcoin is new. It has been around only since 2009. Therefore, there isn’t sufficient data or information for investors to make an educated decision about its workings or feasibility as an asset.

While established platforms like CME are safer and guarantee execution for Bitcoin derivatives, new platforms might start off “clunky” and be more susceptible to hacks.

The Regulatory Status for Bitcoin Is Still Developing

Regulations across geographies are still being developed and implemented. The U.S. has made strides, as several key court cases have concluded and several Bitcoin investment instruments have been approved. The European Union published its Markets in Crypto Assets legislation, which guides the bloc’s members in their cryptocurrency dealings.

There are several leading Bitcoin trading platforms, such as Deribit and OKX, that are not available to American investors due to regulatory compliance issues. This poses issues for those in the U.S. who wish to trade certain instruments or derivatives offered on exchanges that are not regulated by U.S. authorities because if they trade on them, they are not protected.

Knowledge of Order Types Is a Must

Before undertaking a short position in Bitcoin, you should brush up on your knowledge of different order types. They can help limit losses if the price trajectory does not go in the direction that you initially bet—for example, using stop-limit orders while trading derivatives can curtail your losses.

What Is a Short in Bitcoin?

A short is when you borrow an asset, sell it, and hope to buy it back when its price drops. You can do this with Bitcoin, but it is even more risky than doing it with other assets due to its price volatility.

Is There a Stock That Shorts Bitcoin?

There is no stock that shorts Bitcoin, but there are exchange-traded funds that do so. Funds that short assets are generally called inverse funds because they attempt to return the inverse of falling prices. Proshares Short Bitcoin Strategy ETF (BITI) is one of these funds.

Can You Make Money Shorting Bitcoin?

It is possible to short Bitcoin and profit—if you can tolerate the risks and time it right, shorting Bitcoin can generate large profits. However, it can also generate significant losses.

The Bottom Line

Shorting Bitcoin is a viable option for traders comfortable with the risks. Several exchange-traded products and strategies are available for shorting Bitcoin. Before you begin, it helps to learn about order types and to practice your strategies.

The comments, opinions, and analyses expressed on Investopedia are for informational purposes only. Read our warranty and liability disclaimer for more info. As of the date this article was written, the author owns BTC and XRP.