7 Ways to Short Crypto: Bitcoin, Ether, and More

Another way to short cryptocurrency is with options contacts. Put options, for example, profit when the underlying declines in value.

Like futures contracts, options contracts are derivatives. This means that the value of an option contract is derived from a separate, underlying source. There is also leverage in options – typically, one options contract represents 100 shares of the underlying stock. 

In addition to buying puts, you can also short crypto with options by buying put spreads or selling call spreads. You can also take a neutral/short position in crypto by selling calls naked, but this is a very high-risk strategy. 

If you are bearish on crypto, you can buy put options on many different crypto ETFs and stocks. 

Crypto ETFs with Options

• BITO – futures-based bitcoin ETF

• BLCN – Invests in companies involved with blockchain 

• BLOK – Invests in companies involved with blockchain 

Crypto Stocks with Options

• Coinbase (COIN)

• Riot (RIOT)

• MicroStrategy Inc (MSTR)

🍒 tastytrade was recently ranked as the #1 options trading platform by Investopedia. Check out tastytrade here!

You can also trade binary crypto options on offshore exchanges like Deribit and OKEx.

4. Short Crypto With CFDs

Contract for Difference (CFD) is a method of trading that allows individuals to speculate on the future price of an asset without having to actually own the underlying. In the US, CFDs are not legal. However, if you reside outside the US, you can go short crypto with CFDs on popular platforms like IG. 

📖 Read More: What are IG’s cryptocurrencies CFD product details?

Shorting Crypto in DeFi

Let’s now explore a few ways to sell short crypto in decentralized finance.

📢 In order to interact with DeFi, you’ll need a self-custody crypto wallet. Check out our wallets here!

5. Short Crypto With DeFi Perpetual Futures

One of the most popular ways to sell short cryptos like bitcoin and ether in DeFi is with perpetual futures. 

Unlike the traditional futures we learned about earlier, perpetual futures have no expiration date. Perpetual futures also use what is called a ‘funding rate’. Since these contracts never expire, they must be adjusted, usually a few times a day, so the perpetual price matches that of the underlying crypto asset. These adjustments cost money. Traders of perpetual futures incur these fees by paying a nominal ‘funding rate’. 

Let’s now look at a perpetual trade example.  

Perpetual Trade Example

• Underlying: Bitcoin (BTC)

• Position: Short (anticipating that the BTC price will fall)

• Entry Price: $30,000

• Leverage: 5x 

• Funding Rate: 0.01%

In this example, a trader enters a short position in a perpetual Bitcoin futures contract, expecting the price of Bitcoin to fall. 

The trade is entered at a price of $30,000, using 5x leverage, which magnifies the position’s potential profits and losses. 

To maintain the position, the trader must have at least 5% of the position’s notional value in their account as collateral. Additionally, they must pay a funding rate of 0.01% every 8 hours, based on the difference between the contract price and the spot price of Bitcoin.

Despite the fact that the face value of the cryptocurrency futures contract is based on one Bitcoin, the trader has a leverage of 5x. This magnifies the total value of the trader’s position to $150,000, which is the result of multiplying the entry price of $30,000 by the leverage factor of 5.

Now let’s say that in a week bitcoin falls by 2k. Since this trader is short, they will profit by $2,000. However, since we are leveraged 5x, the true profit here would be $2,000 x 5, or $10,000. We must subtract the funding rate from this profit, but the figure is very small.

📖 Read More: Perpetual Futures for Beginners

Popular DeFi Perpetual Exchanges

• dYdX

• GMX
  
  

6. Short Crypto With DeFi Options 

You can trade options in DeFi as well, though the mechanics here are a little different. 

In traditional options markets, market makers create markets by buying and selling options from traders. Their responsibility is to provide liquidity. They profit on the ‘spread’, or the difference between the bid and ask price. 

DeFi employs automated market markers (AMMs) in order to provide liquidity.

In TradFi, there are huge barriers to entry. In DeFi anybody can be a market maker on DeFi options platforms like Lyra Finance and earn the fees that come with it.

Additionally, anybody can trade options in DeFi. No paperwork, KYC, or advanced learning is required. Here are a few popular DeFi protocols for options:

• Lyra Finance

• Dopex

• Hegic

• Ribbon Finance

📖 Read More: DeFi Options In Depth

7. Short Crypto With Tokens (Synthetic Assets)

When you have a self-custody wallet, you can trade thousands of crypto tokens. Some of these tokens provide inverse exposure to a cryptocurrency, thereby mimicking a short position. Most popular inverse tokens are leveraged at ratios of 1x, 2x, and 3x.

Additional Reading 

CoinTelegraph: A beginner’s guide on how to short Bitcoin and other cryptocurrencies