Crypto prices go way up and then inevitably go down — sometimes way down. When everyone seems to be talking about booming crypto prices, that’s probably a signal to start thinking about selling — or shorting. This Quick Start guide will cover some of the options you can use to short crypto.
Shorting cryptocurrencies, particularly Bitcoin, involve strategies that are unique to crypto in that they come with their own set of risks and requirements.
Margin Trading
In margin trading, an investor borrows funds from a broker or exchange, which amplifies their position size. For example, an investor with $100 in their account can short $1000 worth of Bitcoin by borrowing the remaining $900 on margin. If the price decreases, the investor then can buy back the Bitcoin at the lower price, repay the loan, and pocket the difference.
This method carries a lot of risk, and losses can actually exceed the initial investment because of the leverage used.
Prediction Markets
Prediction markets are platforms where users can bet on future events. Investors can use prediction markets to make bets on whether specific cryptocurrences will decline by a certain percentage. While this approach does not involve holding any crypto, it is still high-risk, as it relies on making accurate predictions about future market prices.
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