- January 29, 2018
- Posted by: Michael
- Category: Cryptocurrency trading
It is said that cryptocurrencies are by far one of the best investments of a decade. And it is actually not far from the truth. The bulls really took over in 2017 causing a mass growth of most cryptocurrencies, the market as a whole rose by millions of dollars and is now seen as especially lucrative. The mainstream idea of buying cryptocurrencies crossed many minds, but what about betting on their downfall? Is such idea sane? By now you probably know that the cryptocurrency market is well known for its instability and when the cryptocurrency prices drop, they drop hard. In order to explain how to short any cryptocurrency on the market, we have created the following guide with instructions that need to be executed.
How to short any cryptocurrency by using CFDs
The easiest and most accessible way how one can go around shorting cryptocurrencies is by using CFDs. This instrument is created for day traders who operate with it whenever they want to be in a position for a time period of minutes or hours. When using CFDs and trading with a CFD broker, there are usually two fees. The first one is a so-called spread which is basically the difference between the price you pay for a crypto coin and the price you receive when you sell it back to the company. The second one is a swap fee which is chargeable to any account that has an open position overnight. Most CFD brokers have really tight spread fees (in comparison to crypto exchanges) and since shorting cryptocurrencies is not a long-term thing (in my opinion), you will in most cases avoid the swap fee. That being said, CFDs are probably the best option how one can short sell cryptocurrencies. General warning: Between 74-89% of retail investor accounts lose money when trading CFDs.
You should consider whether you can afford to take the high risk of losing your money.
The comparison above doesn't cover all brokers out there. We might be partners with some of the listed companies
General warning: Between 74-89% of retail investor accounts lose money when trading CFDs.
Risks associated with shorting cryptocurrencies
Going against the cryptocurrency bulls is very risky and should be done only in a short-term perspective. You do not want to put your money on the line, thinking that the cryptocurrency market will collapse, which is very unlikely to happen. Long-term shorting cryptocurrencies is, therefore, in my opinion out of the question. Unlikely from buying cryptocurrencies and going for a long position (for months or years), the time of shorting cryptocurrency is crucial. While the bulls take time to build and develop, the bearish moves tend to be relatively short and sharp.
Timing is everything
“The longer you stay in a short position the riskier it becomes”. This statement is, of course, genuine only if the cryptocurrency market remains bullish (which so far did for most of the time). The key to shorting cryptocurrencies is obviously in perfect entry and exit points. In order to evaluate when such occasion occurs on the market, we have created the following list of negative impacts which can result in a downfall of the cryptocurrency market.
- Government ban of cryptocurrencies in any important country
- Collapse of a big crypto exchange
- New hard fork
- Negative coverage in media
- Top influencers throwing a bad shadow on cryptocurrencies
- Major companies previously associated with a cryptocurrency end cooperation
- Breaching security protocols
The biggest downfalls of cryptocurrencies – 2017
For most of the year, cryptocurrencies were increasing their value at a vast speed, there were, however, situations when one could go for a short position. Among many, the biggest ones were: China’s ICO Ban, Jamie Dimon stating that Bitcoin is a fraud, the threat of regulation in South Korea and a possible shutdown of virtual currency exchanges etc. If we take Bitcoin, as an example, one the biggest downfall of this cryptocurrency can be considered a one-month time period from December 17, 2017, to January 17, 2018, when Bitcoin lost around 40% of its value ($19,870 to 10,681$). There are two main effects causing this state. Firstly, the ban on currency exchanges in S. Korea which up in the air. Secondly the fact that cryptocurrency market is full of ordinary people who celebrate Christmas, Hanukkah, Kwanzaa, and New Year’ and wish to withdraw yearly gains causing a massive decrease in the supply of a cryptocurrency.