The cryptocurrency market has continued to be depressed recently, and the price of Bitcoin continues to hit record lows. In this case, Bitcoin investors can protect their assets by shorting BTC in a declining market.
So what is Bitcoin shorting and how to short Bitcoin? This article will explain it to you one by one, let’s read on!
What should I do if virtual currencies and Bitcoin fall?
If you invest in Bitcoin, market fluctuations are inevitable. How to avoid losses when the market falls and how to profit when the market falls are issues that investors need to consider.
If you already own Bitcoin, you can short Bitcoin through contract trading and make profits by "shorting". Short selling is a way of buying, but what is different from general buying is that this kind of buying is "shorting", that is, selling an asset and betting that the selling price will fall. The benefit of this approach is that you can make profits even if the market falls.
If you don’t own Bitcoin, you can still invest by shorting Bitcoin. This type of investment allows you to earn money on the depreciation of Bitcoin.
When the market falls, shorting Bitcoin through this method can be advantageous. Although there are risks associated with this investment method, for those investors who can control the risk and pay attention to market fluctuations, shorting Bitcoin when the market falls may be a good choice.
The following will give you a detailed introduction to what Bitcoin shorting is and how you can make money by shorting Bitcoin.
What is Bitcoin short selling?
If you want to make profits through short selling, you must first know what short selling is. Simply put, short selling (short selling) means that when investors expect that the market will fall in the future, they borrow securities/other assets to sell them at the current price, and then buy them after the market falls to obtain the price difference income. This can allow investors to profit even in a bear market.
In a volatile market like Bitcoin, you can protect your Bitcoin holdings by shorting. We can see that in markets like this where Bitcoin prices are falling, many investors are taking short positions and trading.
Ordinary investors who don't understand short selling can only watch the price of Bitcoin fall, while professional investors can protect their assets by shorting Bitcoin and make profits at the same time.
Of course, not all situations can lead to profits from short selling on Bitcoin. Anticipating that the market will fall in the future is a necessary condition for short selling to make profits.
Basically, short selling is to first sell the order when the price of the commodity is predicted to fall, and then buy it back later when the price of the commodity falls. However, if the price of the commodity rises, then the investor will lose money.
Using futures or CFD to short Bitcoin is the most common method of short selling. After being optimistic about the general market, choose to invest and sell contracts on the futures platform. That is a short selling operation.
In addition, if you trade with higher leverage, the risk of closing your position increases. Therefore, before investing, you must thoroughly learn about Bitcoin and leverage, allocate funds reasonably, and avoid large losses.
Why can you profit from short selling on Bitcoin?
Compared with other financial investment products, Bitcoin is more suitable to use contracts to make profits by going long/short. Why is this?
Because the fluctuation range of Bitcoin (BTC) price is much greater than that of other financial investment commodities such as currency pairs, stocks, and crude oil, especially Bitcoin prices may experience huge fluctuations in a short period of time.
Compare the opening price, highest price, lowest price, and closing price of each financial instrument from January 2019 to February 2022, and then use the calculation formula ((monthly highest price – monthly lowest price) / monthly opening price × 100%) Calculating the volatility for each month, we can see that Bitcoin’s volatility is the highest almost every month.
Advantages of Shorting Bitcoin
Short selling occupies a very important position in the trading market. If short selling is not possible, the market will be very unstable. When it rises, it will rise rapidly to the sky; once the momentum passes, it will easily fall to the bottom. Therefore, if the market has sufficient long-short game, then each step will be relatively stable, which is conducive to the health and stability of the capital market.
First of all, short selling is usually used by investors to hedge risks. When the stock market fluctuates greatly and the market conditions are unclear, and investors still hold a heavy position in a certain security, short selling can be used to hedge market risks.
In addition, it can also reduce the existence of bubbles to a certain extent. When a certain stock is overvalued by the market and the bubble is serious, some short-selling institutions will short-sell the company's stock, causing the stock price to fall, while gaining profits and balancing the situation. The valuation of the stock promotes standardization and transparency of the company.
If profits can only be made by relying on price increases, investors' opportunities to obtain profits will decrease and their participation will decrease. However, if long and short positions are combined, investors can make profits regardless of whether the market is rising or falling, so investors' enthusiasm will increase. Market liquidity will also increase.
