How To Make Money in Bear Markets (Shorting Bitcoin)

By shorting, you will be selling an asset with the hope of repurchasing it in the future at a lower price. Bitcoin is an asset that came into existence in 2009, but unlike the assets in traditional finance, no proper exchange was available to use until 2010-2011. Since then, as years passed, these exchanges started updating and providing more services to their users.

Eventually, the option to short Bitcoin was made available to crypto traders just like stocks and other assets in traditional finance. Short selling is a risky way to profit from declining cryptocurrency prices or in other financial markets. It is essentially betting against the asset that you are trading.

When you buy Bitcoin, you expect the price to go up; however, when you short Bitcoin, you expect the price to go down. Shorting an asset is the inverse of buying an asset (referred to as “going long”).

For example, when the Bitcoin price fell from $69,000 to $40,000 in 2022, I had many reasons to believe that the downtrend would continue, so I decided to short-sell my Bitcoin by using Bitcoin roadmap analysis.

In April 2022, I sold 1 BTC at around the $40,000 price, and after 3 months in July, I repurchased the 1 BTC for $20,000. This trade allowed me to keep my 1 BTC plus $20,000 in profits. But this is not the most common way to short an asset; in my case, I already had Bitcoin, but in many cases you do not own the asset that you want to sell short.

The most common way to short an asset is by borrowing a certain amount of the asset and then selling it at the current market. Then you have to wait for the asset’s price to decrease and rebuy the amount you borrowed at a lower price. This allows you to pay back your debt plus interest to your lender, leaving you with a profit. The size of the profit depends on how much the price decreases.

For instance, you can borrow Bitcoin from an exchange that provides margin trading services using a certain amount of margin as collateral. This way, if your prediction goes wrong and the Bitcoin price increases, the maximum you can lose is the margin you set up as collateral.

Now that we’ve discussed what short selling is, you must be wondering what the different ways for shorting Bitcoin are. We will be getting into that next.

The price of Bitcoin is highly volatile and can go through sudden increases or decreases, so selling it short is risky for inexperienced traders.

The methods vary based on how much risk they bring and how much profit you can make from using them. Here are your options:

1. Margin Trading

One of the most common ways to short Bitcoin is through a cryptocurrency exchange that provides margin trading services. Most top crypto exchanges, like Binance and Kraken, provide margin trading, which allows traders to “borrow” assets from the exchange to make a trade.

It’s important to remember that margin trading involves leverage or borrowed money, which can either multiply your profits or quickly wipe out your collateral if there is a significant increase in the price of Bitcoin. These are the main steps for shorting using margin:

• Fund your margin account
• Borrow Bitcoin using your margin as collateral
• Sell the Bitcoin on the market
• Buy back the borrowed amount whenever you see fit
• Repay what you borrowed plus any interest and keep the profit

The difference between the price you sold the Bitcoin at and the price at which you repurchased it is the profit. But remember if the price increases and you have to rebuy the Bitcoin at a higher price than what you sold, you have taken a loss in that trade.

2. Futures Market

Bitcoin has a futures market where a buyer agrees to purchase Bitcoin with a contract specifying when and at what price the Bitcoin will be sold. When you purchase a futures contract, you are betting that the Bitcoin price will increase; this ensures that you can get a good deal later.

When you sell a futures contract, it means you have a bearish mindset and predict that Bitcoin’s price will decrease. Therefore, you can short Bitcoin by selling futures contracts, thus betting on a lower price for Bitcoin.

You can short Bitcoin futures at the Chicago Mercantile Exchange (CME), the world’s biggest derivatives trading platform, and on many cryptocurrency exchanges. Here is a list of the top exchanges to trade Bitcoin futures.

Remember that the futures market provides higher leverage than margin trading, which comes with higher risk. You should only engage in this type of trading after consistently succeeding with margin trading. The advantage of the futures market is that you can short Bitcoin with stablecoins like USDT or USDC, as well as with Bitcoin itself through inverse perpetual.

3. Binary Options Trading

Put options also enable traders to short Bitcoin. When you purchase a put option, you own the right to sell the Bitcoin at today’s price, no matter where the price goes until the expiration date.

You don’t need to own Bitcoin to short it through put options. Since you believe the Bitcoin price will go down, you can just purchase a put option at higher prices; then, as the Bitcoin price decreases, the value of your put option increases.

The main advantage of using binary options trading over futures is that you can limit your losses by choosing not to sell your put options. This means your losses are limited to the price you paid for the put options.

The downside of binary options trading is that it is more complex than the other methods, especially for beginners. Popular venues for trading options are Deribit and OKX.

4. Spot Trading

As a Bitcoin holder, if you predict the price will go down, you could sell at the current price, then repurchase it after it has dropped, making a profit just like I did in 2022. Since the Bitcoin you are shorting is not “borrowed”, you are never required to rebuy it to return it to a lender.

There are no margin payments to be made, which means you can hold your short position for as long as you want at no cost. However, you must own Bitcoin in the first place. Spot trading is the safest way for beginners to short Bitcoin and make money during downtrends since you are not getting involved in any leverage.

How to short Bitcoin on TD Ameritrade?

You first need to open a TD Ameritrade account to get started. From there, you will be prompted to open a futures account with TD Ameritrade’s affiliate, Charles Schwab Futures and Forex. Certain qualifications and restrictions exist: you must be futures approved and use a non-retirement account to trade cryptocurrencies.

How to short Bitcoin on Binance?

You must create a Binance account if they provide services in your country. US citizens must create a BinanceUS account. Once you’re registered, you can short Bitcoin through their Spot, Margin, and Futures trading platforms depending on your personal preference.

Can you short cryptocurrencies other than Bitcoin?

Yes, you can. The crypto exchanges have made almost all the cryptocurrencies like Ethereum (ETH), Cardano (ADA), Solana (SOL), and hundreds more available to short for traders. However, these Altcoins have even more price volatility than Bitcoin, so trading them comes with greater risk.

How to short Bitcoin in the United States?

Due to the specific rules and regulations, certain exchanges like Binance cannot provide services to US citizens. Other exchanges like Coinbase and Kraken are available to traders in the US who want to short Bitcoin through spot, margin, or futures trading. For the futures market, it’s best for US citizens to use CME, which is the best derivative platform.

Conclusion

One of the most important things you should keep in mind is that Bitcoin is a risky asset, and its price is highly volatile. Even though Bitcoin shorting allows you to trade both sides of the market, you should only engage in it with education and experience.

The question of which platform you should use to short Bitcoin depends on the country you live in and the method you want to use to short Bitcoin. This is because each country has specific regulations on trading cryptocurrencies, especially regarding futures markets.

I have provided examples of platforms you can use for each method of shorting Bitcoin while introducing the method in this article. But the best platform for you can only be decided by yourself, depending on where you live and how you want to short Bitcoin.

A quote by the great trader Ed Seykota says: “The trend is your friend until the end when it bends.” This means it’s best not to try shorting during bull markets when the Bitcoin price is shooting for the sky — you’re more likely to lose money during these situations.

It’s also best to not go looking for the “top” of the market. It’s better to start shorting when the market is in a clear downtrend, especially if you want to short Bitcoin through the futures market or margin trading, which come with more significant risks.

My new friends from the exhibition said this conversation was really helpful and taught them new methods to earn more money, and I am confident this article will do the same for you, too.