Shorting Bitcoin (BTC): An Easy-To-Follow Guide
In times of a bear market, a lot of investors get frightened due to the massive losses they can have at a certain moment. But many traders are counting profits while others are losing. This is how shorting becomes a great opportunity for a lot of traders to possibly gain huge returns.
For many professional crypto traders, learning how to short Bitcoin (BTC) is a very important skill. Shorting is a sophisticated investment or trading technique that incorporates an extremely high level of risk.
On the other hand, if you can master the skill of shorting Bitcoin and other cryptocurrencies, you can potentially acquire enormous returns when the crypto market is down and crashing.
Bitcoin (BTC) is one of the best choices for shorting among other digital currencies. Its price volatility provides agile traders with a huge opportunity to gain profits during negative price fluctuations.
Learn more details in this article about shorting Bitcoin when the crypto market is down.
A Guide to Shorting Bitcoin (BTC)
Shorting allows traders to take advantage of the price drops of cryptocurrencies and other financial assets. When traders or investors can see a potential decline in the price of Bitcoin and other assets, they can acquire huge returns by shorting. When shorting, a trader bets against the price of an asset.
Is Shorting Bitcoin Essential?
One can short Bitcoin for significant reasons. These include:
Paying Attention to Price Volatility
Knowing Bitcoin’s history, its price value can quickly rise and drop. Many traders have a high-risk appetite and are attracted to extremely volatile assets that can potentially reap massive rewards or equally produce enormous losses.
Some traders rely on pure luck and speculation when shorting Bitcoin; however, others utilise a systematic approach that is based on knowledge and experience.
Hedging the Risk of a Huge Portfolio
A trader or investor shorts his/her assets to hedge the risk of their large portfolio. For instance, when a Bitcoin holder speculates or sees a potential price decline, he/she decides to open a short-sell position.
One of the ways to hedge your risks against potential losses when trading or investing in Bitcoin (BTC) and other digital assets is to use a trading software with a high success score like the Bitcoin Up app.
Staying Objective Against Scepticism
There are traders who are shorting Bitcoin for a short term only and hold bearish sentiments towards the market. They keep themselves updated with the latest advancement in Bitcoin and the blockchain.
These traders make sure to keep an objective mindset and do not allow opinions to interfere and influence their decisions.
Asset Valuation
Some investors wait for a downward trend to occur before deciding to short Bitcoin since they speculate that Bitcoin is overvalued or exists in a price bubble. An investor or trader who trades Bitcoin using valuation metrics primarily follows a fundamental style of trading, studying the speculated innate value of an asset against its current market price.
What You Need to Understand When Shorting Bitcoin
In some particular times, shorting Bitcoin becomes more complex. For instance, opening a short position against a long-term upward trend is risky. Bitcoin has a way of gradually rising in price value.
In the opposite manner, this crypto asset can shed thousands of dollars in market value in minutes. These conditions put into perspective why shorting becomes more complicated for newbie investors to execute the strategy successfully.
Consider the Mentality of Other Traders in the Crypto Market
It’s also essential to consider the mentality of other traders in the market. When an investor shorts Bitcoin and its price instantaneously starts to rise quickly, he/she will need to rebuy his/her assets. Unluckily, every other trader who makes a similar decision will have to achieve the same task.
This instant drive to rebuy Bitcoin drives the market value up sharply. When this instance takes place, it’s called a “short squeeze”. Short squeezes add to your losses in this position.
An investor or trader should be cautious when evaluating the market to prevent this kind of scenario.
Closing Thoughts
Shorting is one of the best ways to earn profits when an asset’s price declines. But if you are a beginner in trading and investing and are not totally familiar with the crypto market, you can quickly lose your positions.
To avoid this, one must need to study and master how shorting works. By successfully mastering this technique, a trader can possibly generate huge returns.
Disclaimer: The views and opinions expressed by the author should not be considered as financial advice. We do not give advice on financial products.