As the crypto crash continues to push down digital assets, investors are showing interest in ways to short crypto. Indeed, as Bitcoin (BTC-USD) eyes a drop below the $20,000-per-coin threshold, investors are beginning to bet against the volatile currencies.
Even though some investors once viewed crypto as a potential hedge against inflation, the market has seen steep losses. Some of the biggest cryptos by market capitalization have shed more than half their value this year.
The idea of shorting crypto is a somewhat novel one. Unlike stocks, which investors can simply sell on the open market with the ability to buy them back for less money should the stock’s price go down, shorting crypto is a bit more involved.
There is no direct way to short crypto, but rather, there are workarounds that allow investors to benefit from the crypto market’s decline.
5 Ways You Can Short Crypto
- Margin trading remains likely the single most convenient way to short Bitcoin and other cryptos. Many of the most popular crypto exchange platforms and brokerages allow their users to borrow money to develop net short positions on certain cryptos. Binance and Kraken are two popular options for such a trade.
- Shorting crypto through futures markets is also a relatively straightforward way to profit from the crypto crash. By purchasing Bitcoin contracts that predict a lower price by a certain date, you can profit should they prove accurate. The Chicago Mercantile Exchange offers futures contracts for a select number of cryptos.
- Prediction markets are also a fairly simple way to bet against crypto. Using crypto prediction markets like Augur and Polymarket, investors can make a wager that a given crypto will decline by a specific percent by a certain date. Should someone take you up on the bet and you prove correct, you stand to profit.
- Inverse exchange-traded funds are bets on the decline of a given security. However, ETFs like Canada’s BetaPro Bitcoin Inverse ETF are not available in the U.S. As a workaround, some investors accumulate short positions in ETFs like the ProShares Bitcoin Strategy ETF (NYSEARCA:BITO), which offers exposure to Bitcoin futures contracts.
- A fifth way that investors have learned to short digital assets is through buying short tokens. Essentially, if the price of Bitcoin goes down, the price of a short Bitcoin token will go up. The 3X Short Bitcoin Token (BEAR-USD) is one such token. For every 1% Bitcoin goes down, the BEAR crypto should increase 3%.
On the date of publication, Shrey Dua did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.