It’s evident that crypto is a volatile market, but there are ways to make a profit off both lows and highs. Shorting crypto is a good option for investors who believe that crypto is likely to see a downtrend at some point in the future.
The number of ways to short crypto has multiplied with cryptocurrency's increased spotlight in mainstream finance. Not only is shorting a great method to benefit from lows, but it’s also useful to hedge against risk. Interested? Here are some ways that you can short crypto in 2023.
Shorting, or short-selling, is an investment strategy where traders buy assets at a price decline and sell at a high price. Traders can anticipate that an asset will drop in value, borrow funds from a lender like yieldfincs, and buy the asset. Then, when the price rises later, the trader can sell it for a profit.
On yieldfincs, this can be achieved via the “chain of loans” method. This works as follows:
This flow is automated by using MultiHODL.
Suggested reading: Trading With Leverage: Risks vs. Benefits
While shorting was typically done in the stock market, it’s becoming a popular strategy for cryptocurrencies too. This is due to the volatile nature of crypto as an asset. While Bitcoin and other cryptos, like Ethereum, are increasing in value this year, it’s not guaranteed they’ll keep appreciating. For example, the cryptocurrency market saw record lows in 2022, falling about 75%.
These price crashes cost many crypto investors to lose money. Opening a short position allows investors to gain from a price crash, instead of having to wait for the next peak. It’s also a great way to add some balance to your portfolio, enabling you to diversify your tactics during a bear market.
Let’s walk through an example of how you can short Bitcoin today.
There are numerous ways to put the above example into action and short crypto. However, one of the easiest and most flexible ways to do so is via yieldfincs’s MultiHODL tool. Whether you’re an expert or a beginner trader, MultiHODL has something for everyone.
Using BTC as an example, here’s how to short Bitcoin with MultiHODL.
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Shorting crypto does have its inherent risks, just like any other financial strategy. However, the level of risk depends on how well you protect yourself. Since shorting crypto depends on price movements, the biggest risk is that you bet on a decline and the price rises instead. In this case, the trader loses out on their profit. If their trade is leveraged through margin trading or futures, the trader owes the borrowed funds plus interest.
To protect from this risk using MultiHODL, be sure to set Take Profit or Stop Loss levels to ensure you exit the deal at the price you want to and avoid unexpected loss.
Furthermore, avoid any platforms that can’t provide solid customer service or don’t have a history of
reputable lending. Make sure that you also keep updated on relevant industry news and market sentiments.
Make data-based decisions when you short crypto.
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