What is shorting crypto?
Shorting crypto aims to sell the coin at a high price and purchase it back at a lower value. Unlike most traders who’d like to buy low and sell high, short-seller practices the opposite. Traders will gain from the difference between when the asset has been cleared and rebought.
If you’re active on crypto trading platforms, then there is a possibility you can short crypto, like Bitcoin. Traders might want to do this because of several reasons. First, shorting crypto has become popular as more people delve into trading and become more experienced in technical and fundamental analysis.
Why should I short crypto?
As mentioned, there are many reasons traders might wish to short crypto. The first reason is the valuation. If traders believe crypto to be highly overpriced and an asset finds itself in a price bubble, they might wish to wait for a negative trend to start shorting the asset. Traders often use a combination of fundamental analysis and technical analysis to form an opinion on a possible downtrend of an investment.
Crypto can be heavily volatile, and sometimes investors short crypto to mitigate the risk to their portfolio. If you already own crypto and you believe it’ll go down in value soon, you could choose to open a short position. If it turns out you’re right, profits from shorting could offset or exceed the loss of going long. Investors and traders can also short crypto because of skepticism. Some traders who short bitcoin believe cryptocurrencies will be a short-term trend and are averse to the overall crypto market. These short sellers prefer to remain updated on the newest Bitcoin and blockchain breakthroughs and avoid allowing their emotions to cloud their judgment.
In addition, crypto is relatively new as an asset, and while news comes out daily, this also comes with volatility. Bitcoin and other cryptocurrencies’ price may increase as rapidly as it depreciates, as seen through its history. Traders with a high risk tolerance are attracted to volatile assets with the potential for massive gains or losses. However, while some traders rely on luck, others use a disciplined method based on experience and understanding.
Should I short crypto?
While there are many reasons to short crypto, shorting stocks can come with unlimited losses, and it may not be easy to perform technical analysis accurately. Therefore, you may short crypto in various ways, depending on the needs and objectives of your investing or trading journey. When trading crypto, it is considered wise to use a combination of technical and fundamental research. However, if you are starting, you should understand one analytical field before going on to the next.