How to Short-Sell Cryptocurrency: A Brief Overview

Short-Selling Cryptocurrency is not a new idea or method. In fact, the first documented short sell took place in 1609, when Isaac Le Maire, a sizeable shareholder of the Dutch East India Company, colluded to push the price of his own stock down in order to sell and buy them back for a profit — a now-illegal practice, colloquially known as a ‘bear raid’.

Many of us have heard of ‘shorting’, but understanding the concept can be challenging, especially if you’re not familiar with long-term investment and trading strategies. 

In essence, ‘shorting’, is the practice of predicting that a stock’s value is going to decline, borrowing and then selling off shares of that stock at its market price, and then buying it back again once its value has dropped to return it to the lender. 

The concept can be applied to any kind of investment strategy; including those which deal with the value of the currency. 

Short-Sell Cryptocurrency

What are the Risks?

As with many types of trading strategies, there are several risks involved with the process of short-selling. This is because it involves banking and placing real money on the fact that the value of something will fall. Because of this, it requires a great deal of industry and market insight, as well as an understanding of economical and environmental factors which are likely to impact value fluctuations.

Further to this, markets can shift in unprecedented and often unpredictable ways — whether due to unforeseen changes to competitor performance, social events, season shifts, or simply changeable consumer interests.   

The risk, then, with short-selling is that you make misinformed or incorrect decisions about a potential fall in the value of an asset or stock. This would then lead to you being unable to make any profit.

 Another risk involved with this method of trading is incorrectly timing the ‘sell-out’. If you do not wait long enough for the stock value to decline, you won’t be able to make a profit and if you wait too long, you risk losing all the money you invested. Timing, then, is everything when it comes to shorting. 

How do I Safely Short-Sell Cryptocurrency?

When it comes to shorting cryptocurrency, the current risks that are involved with short-selling stocks are magnified. Cryptocurrency markets are extremely volatile by nature, meaning they’re prone to shift more drastically and more quickly. 

Because of this, they’re also harder to predict. 

As a result of that, there’s no real ‘safe’ way to short-sell cryptocurrency. But there are ways to minimize the risks involved.  Here’s how:

Wait for a downward turn

Cryptocurrencies like Bitcoin are extremely volatile, and their value can depreciate as quickly as they appreciate. 

Because of this unpredictability, it can help to wait for a downward turn before deciding to short-sell. This can give you a clearer indication of patterns and trends. 

Be skeptical 

Sentimentality can be a big pitfall for any investor, and this includes when trading with Bitcoin. For example, you may have been one of the initial investors in Bitcoin, before it became so popular and widely used. This could have its drawbacks and may mean losing your initial investments and/or your shares. 

Keeping a clear head, and an objective view of the market and its fluctuations will help you to make better-informed decisions when trying to short any kind of cryptocurrency. 

Stay informed

Any kind of investment requires you to be highly informed about a market — and everything that surrounds it. That includes the industry it sits in, social implications, economical factors, and consumer trends. 

For those looking to short anything, including cryptocurrencies, keeping up-to-date with this information is crucial to minimizing the risks involved.

About the author

Brent Dixon is the owner of E-Crypto News and an early adopter of cryptocurrencies. He is a Book editor- that has edited numerous books on Cryptocurrencies. He has been a writer for more than 30 years. Covering everything from Jazz Music to Blockchain Technology. He currently lives with his wife on Miami Beach, Fl.

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CryptoCurrencyUSDChange 1hChange 24hChange 7d
Bitcoin18,910 1.53 % 6.15 % 5.37 %
Ethereum1,011.0 2.05 % 9.63 % 3.82 %
Tether1.001 0.11 % 0.03 % 0.00 %
USD Coin1.000 0.02 % 0.05 % 0.03 %
BNB208.15 1.25 % 5.05 % 2.99 %
Binance USD1.003 0.09 % 0.11 % 0.06 %
XRP0.3099 1.04 % 5.50 % 3.99 %
Cardano0.4374 2.06 % 7.40 % 4.78 %
Solana31.12 2.89 % 10.67 % 9.09 %
Dogecoin0.06308 2.08 % 6.07 % 2.10 %

Bitcoin (BTC) $ 19,226.39
Ethereum (ETH) $ 1,029.26
Tether (USDT) $ 1.00
USD Coin (USDC) $ 1.00
BNB (BNB) $ 211.14
Binance USD (BUSD) $ 1.00
XRP (XRP) $ 0.312755
Cardano (ADA) $ 0.447094
Solana (SOL) $ 32.10
Dogecoin (DOGE) $ 0.064418