How To Short Bitcoin (BTC)

    • James Page

James HeadshotAuthor: James Page - Last Updated on June 28, 2022

Summary: Shorting Bitcoin is pretty straightforward, all you need is a crypto broker that allows for short selling. While there are a few exchanges out there that have added the ability to short crypto, our recommendation is to use eToro. They’re well-known, have a global presence, and are trusted by millions of users from 100+ countries.

We’ll be using eToro in our guide, you can sign up with one of the sign-up buttons below.

Global: Sign up with eToro

USA: Sign up with eToro US

Bitcoin

Before we get started, let’s quickly explain what shorting is (for those that are new to it). Shorting is the practice of selling a cryptocurrency hoping it will drop in price so you can buy it back later for cheaper… which, if successful, will give you a net profit.

It might sound a bit complex but don’t worry, it’s a lot easier than you might think.

How to Short Bitcoin

Shorting Bitcoin can be done in 4 steps:

  1. Find a crypto trading platform
  2. Sign up with the exchange
  3. Fund your account with fiat or crypto
  4. Short Bitcoin

1. Find a crypto trading platform

As mentioned before, for this guide we’ll be using eToro as they offer the ability to short the most common cryptocurrencies.

You can, of course, use any other crypto trading platform that allows for short selling.

etoro crypto

2. Sign up with the crypto trading platform

Let’s start with creating an account on eToro.

Global: Sign up with eToro

USA: Sign up with eToro US

 

eToro sign up form

The sign-up process is very easy, as is the verification that needs to be completed afterwards so you can get started.

3. Funding your account

Next is funding your account. You have several deposit methods to choose from when depositing funds into your eToro Account. These include a bank transfer, credit card, debit card, PayPal, and more.

4. Short Bitcoin

These are the steps to follow to execute a short sell:

  1. Go to the search bar at the top, find Bitcoin by entering the name.
  2. On the crypto page/section, on the right side, hit the TRADE button to enter the trading interface.
  3. At the top of the trading interface: Click on sell to short the crypto.
  4. Enter the amount for which you want to sell Bitcoin and click on “Open Trade”.

Once you’re ready to close the trade, hopefully when the value of Bitcoin has dropped, go to your Portfolio, find the Bitcoin trade, and click on the red cross to close the trade.

If your assumption/prediction was right, then the profit will be added to your account after closing the trade. If you were wrong on the other hand, you’ll incur a loss which will be debited from your eToro account.

Congratulations, now you know how to short Bitcoin!

Global: Sign up with eToro

USA: Sign up with eToro US

 

Disclaimer: Trading, investing, and dealing with digital and cryptocurrencies might involve a lot of risks. Their prices are volatile and performance is unpredictable. Their past performance is no guarantee of future performance.

Affiliate Disclosure: This site is supported by its users. We may receive commissions for purchases made through the links on our site. This does not impact our reviews, guides or comparisons.

 

Where to Short Bitcoin (BTC)

Aside from eToro, the other major exchange you can use is Binance.

While Binance tends to be a bit more advanced when compared with eToro, they do have a lot more digital assets to trade with.

 

Frequently Asked Questions

Can I short Bitcoin on Binance?

Yes, you can short Bitcoin on Binance. They have over 300 cryptocurrencies on offer, have a decent phone app and a lot of advanced trading features.

About Bitcoin

Bitcoin is a cryptocurrency. It is a cryptography-based decentralized digital currency. It operates without the involvement of any central authority, like a central banking institution or a company. It is distinct from government-issued fiat currencies like US Dollars or Euros. These currencies are managed by the central banks of the countries. Because of its decentralized nature, it can operate as a peer-to–peer network that allows users to send money to each other directly without the need for intermediaries.

Satoshi Nakamoto, or an unknown group, created the idea of an electronic peer-to-peer money system. This whitepaper outlines the creator. Satoshi's identity has never been proven, but there has been speculation about the identity of Satoshi.

It was launched in January 2009, and the first block of genesis was mined on the 9th of January 2009.

Bitcoin isn't a coin that looks like a physical thing. The blockchain is actually a distributed accounting database that is stored in a chain block format.

In a centralized system such as those operated by commercial banks, if Alice wants to transact money with Bob, the bank will be the only entity to hold the ledger showing how much balance Alice is holding. As the bank manages the ledger, it will verify Alice has sufficient funds in order to send Bob money. Once the transaction goes through successfully, the Bank will take Alice's funds and credit Bob's with the latest amount.

Bitcoin functions in a decentralized way. Bitcoin's ledger is distributed among nodes as there is no central entity like a bank that verifies transactions and maintains the ledger. A node is software that can be downloaded and used to participate in the network. That will provide everyone with a copy to show how much Alice and Bob have, and there will not be any disputes over fund balance.

Now imagine Alice transferring money to Bob with bitcoin. Alice will need broadcast to the network her transaction that she intends $1 to Bob in an equivalent amount. How will the system know if she has enough Bitcoin to perform the transaction, and if she doesn't spend twice as much?

This is where mining takes places. A Bitcoin miner uses his or her computer to verify Alice's transactions to be added to the ledger. They will have to solve a complex puzzle in order to prevent a miner's ability to add any arbitrary transactions. If the miner can solve the puzzle, known as the Proof of Work, which occurs at random, then he/she is able add the transactions to the ledger. The record is complete.

These computer rigs are expensive to run due to capital expenses for purchasing them. The miners get a new supply of Bitcoins as part their monetary system. They also receive a small amount of fees from the person who wants to transact (in our case, Alice).

This makes the Bitcoin ledger trustless and resistant to fraud. The system is resilient, but it still faces risks such as the 51% attack in which miners control over 51% of total computation power. Additionally, security risks that are not under the control Bitcoin protocol can exist.

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