Can Bitcoin be shorted? The cryptocurrency network is one of the most volatile infrastructures. That encourages the investors to ask, “can Bitcoin be shorted?” The answer is simply “Yes.” However, some conditions should occur in order to achieve real shorting.
Before discussing these conditions, it is essential to understand that the Bitcoin rate can change several times a day. First, it shows growth, then a fall, then it shows another growth and another fall, and so on ad infinitum. There are two main behavior patterns that cryptocurrency traders practice: buying coins at a low price (this is what most traders do) and buying coins at their peak, during all-time highs.
Of course, it is easier and less costly to buy a currency at a low price and wait for its growth. However, no single currency consistently shows a permanent increase without a fall. So, it is crucial for a cryptocurrency trader to make shorting – to enter a short position, which means borrowing a cryptocurrency and selling it at its current price – after the price decreases, the trader can profit.
Can Bitcoin Be Shorted? The Answer!
It is essential to recognize the shorting mechanism and understand its core essence. At first, in order to open a short position, the trader should borrow a cryptocurrency and sell it at the current price. After the price has decreased, the trader buys out the cryptocurrency at a lower price, paying back the borrowed money and making a profit, taking advantage of the difference between the purchase and sale costs.
For example, if you first sell Bitcoin at the level of $7300, and then, after falling by a specific rate, say, to $6800, you bought another Bitcoin, then you can get a profit of $500 – about 7%. Many popular crypto platforms, such as Bitfinex and Kraken, provide margin trading services – borrowing capital at a relatively high percentage to increase your leverage. So the whole borrowing operations are automated and configured to work with the most secure conditions.
More definitely, the shorting process requires that traders are proficient and skilled analysts. Therefore, not everyone can handle a falling market. Professional traders always study newcomer psychology. They know when they can sell currencies and when they short them. Experienced traders wait for such moments.
They start the “squeeze” process, which allows them to get the maximum earnings. To avoid huge losses, they prefer to exchange cryptocurrencies at opening short positions.
Bitcoin & Trading Volume Calculations
For a cryptocurrency to grow in price, a maximum trading volume and demand-to-buy are required. It is vital to consider that value of an asset may decrease. The market’s fall can end with resumed selling – this is the main problem for traders who often short Bitcoin.
Most traders try to work on momentum investing systems. When a particular cryptocurrency has risen or decreased in price, they use many different trading tactics in order to achieve gains.
A sharp decline in the natural rate would thus require monitoring tickers – the coin indicators. Typically, the shorting squeeze process starts when market participants are ready for a sharp price drop.
Shorting Techniques
Let’s return to the question, “can Bitcoin be shorted? It still represents the center of our attention. To provide an accurate and concluding answer, we should recognize that relatively low volatility currencies are generally safe to be shorted. It should also be remembered that there are much fewer participants in a bear market than in a bull market. This means that most long positions can suppress the short ones.
When shorting a cryptocurrency, you should realize that you can earn no more than 50% if the value has fallen by half. If the price has doubled, then the loss will be 100%. Therefore, you need to be careful. The cryptocurrency market amazes even the most experienced traders who always emphasize that it is fluctuating.
It is recommended that you, as a new trader, choose a bear market when shorting Bitcoin, as you can find several opportunities to open a short position. You ought to accurately reconcile the moment when you enter the short position.
The profits you will gain are determined by your ability to hunt the suitable opportunity, which helps you identify the appropriate shorting technique that complies with the cryptocurrency you trade in.
To successfully do that, you need to use some technical analysis to decide the starting point. At this critical stage, you can apply a triangle indicator, which provides a movable chart in the form of a geometric figure, clarifying when the rate rises within a definite period. With other indicators on a crypto price decline, such as Oscillators, MAXD, and ADX, you can easily short the cryptocurrency and earn money.
It is also worth paying attention to short-term price indicators. Suppose the market shows an absolute downtrend but does not fully meet the lower peaks characteristics. In that case, it is advisable to investigate short-term price indicators, including Keltner channels, RSI, and ATR.
Can Bitcoin Be Shorted? Final Thoughts
Opening a short position can bring maximum profits provided that the asset value drops sharply. For that, it is essential to calculate the opening and closing moment accurately.
Even though the shorting process is a complicated way to make money, it is still effective. After all, the market goes up and down, which means that there are falls and ups. That will help you make more profit on short positions than on long ones.
Because the crypto market is mainly unstable, it requires further caution. For example, if you buy assets and hold them, hoping that prices may rise, you will most likely lose your total investment. In addition, shorting shows the asset weakness. That means you have to invest in feasible investments, which can yield tremendous results.
In conclusion, it is your decision. You are the only person who will endure all responsibilities. So, we advise you to consult a specialized entity that would shape the right direction for your investment.
Also, make sure to read our previous article, “can Bitcoin be hacked?”
Investing in stocks, cryptocurrencies, and other Initial Coin Offerings (“ICOs”) is highly risky and speculative. This article is not a recommendation by iCryptoApe or the writer to invest in stocks, cryptocurrencies, or other ICOs. Because each person or individual’s circumstances are unique, therefore, a qualified professional and/or a financial advisor should always be consulted before making any financial decisions and/or trading or buying stocks, cryptocurrencies, or other ICOs. iCryptoApe makes no representations or guarantees as to the accuracy or timeliness of the information included within.
