When it comes to the cryptocurrency market, there’s a lot of money to be made. Provided you know how. And the how has been a very closely guarded secret up until now.
But don’t worry, there’s no need for animal sacrifices or occult spells to figure out the mysticism behind making money with crypto.
All you need to do is read on.
One way of making money with crypto is called shorting. In physical trade, shorting is like selling your wares at a high price and then buying them back at a lower price.
A lot of people would call this a dick move, but a lot of people don’t make money with crypto.
But you may be wondering what exactly is shorting and how does it work with cryptocurrencies. Well, that’s a good question.
So let’s start with the basics.
What Is Shorting Crypto?
Like we said earlier, in physical trading shorting is like selling your wares and then buying them back at a lower price. Think of shorting crypto in the same way.
Shorting crypto is essentially when you sell either your own or borrowed crypto on the market and then buy it back at a lower price.
Then profit comes from the price difference between selling it and buying it at a lower price.
By selling your crypto, what you’ve done is flooded the market. The more crypto that’s available, the lower the price. Think of it like this. In a marketplace, one seller is selling blue vases.
They’ve got loads of them going for let’s say, $10. People come and buy all of them, because who doesn’t want a blue vase?
But the problem is that now everyone has a blue vase. Walk into a home, oh look there’s a blue vase. Your uncles got one, your aunt, even your aunt’s cat.
So now you don’t want a blue vase anymore, you want to be unique.
You go back to the seller and offer to sell it back to them. But they won’t take it back at the price they sold it for.
How about $6 instead? Blue vases are everywhere now so they’re not worth as much, haven’t you heard?
Reluctantly you agree to sell it back for a lower price, just so long as you can be rid of the damn blue vase.
The seller has now made a profit of $4. But if you want to get into it, it’s more like revenue of $14 if you add up the original price they sold the vase for.
After counting up their money, the seller turns to you and says, how about a green vase instead?
Barring the green vase bit at the end, that’s what shorting is.
Only the blue vases are cryptocurrency, the people buying the vases represent the cryptomarket, and the seller is… YOU (Shock plot twist! And maybe shorting was the friend we made along the way).
How To Short Crypto
To short crypto, you first need to sell your crypto when the price is relatively decent.
Do not sell the crypto for less than you bought it, otherwise, you’re losing money and there’s no profit to be made from the get-go.
Sometimes you can borrow crypto instead of buying it to sell it. This is called Margin Trading. You’re able to borrow the crypto from a broker.
You don’t have to pay outright and it’s a lot like taking out a loan. Then you can sell the crypto. However, the catch with this is that you have to pay the loan back.
With some brokers, you won’t have access to your assets until the balance of the loan is paid.
So if you don’t end up making money by shorting- say the market prices unexpectedly go up instead of down which will result in a loss- then this will leave you in serious debt.
But say the prices go down and you’re able to buy your crypto back at a lower price, this does mean more profit than if you had bought the crypto instead of loaning it.
Also by using a broker you’re able to start shorting a lot quicker than if you had to buy, especially if you had to raise the funds to buy crypto in the first place.
Some sites that allow you to use a broker and are great platforms for shorting are Kraken and Binance.
Why Short Crypto?
The cryptocurrency market is volatile. If you’ve heard of the currency bitcoin, then you’ll know that bitcoin went from being worth $900 to almost $20,000 in 2017.
That doesn’t happen. It was unheard of. The spike is what we call volatile and unpredictable. And then bitcoin crashed.
For volatile currencies like this, that are prone to crashing, shorting is a good option.
You’re able to sell when the price is good, and then when the inevitable crash comes along, you can buy back your crypto at a much cheaper price. That’s why a lot of people short cryptocurrencies like bitcoin.
A Few Things To Consider When Shorting
The main thing to consider when shorting is that it is risky. As we said, the crypto market can be volatile.
Shorting is hedging your bets on the idea that the cryptocurrency will decline in value and that’s not always the case.
You should be especially mindful of this if you are going through a broker as there is a much higher risk.
If you don’t make money, it’s not just a case of lost profit, it’s serious financial debt that can be legally enforced.
Moreover, it can lead to you being blacklisted with that broker and perhaps across the board if you can’t pay it back. It will definitely affect your credit score.
However, if you do it right and the winds blow in your favor, then there is a serious amount of money than can be made from shorting crypto. So maybe an animal sacrifice and spell or two wouldn’t hurt.