How to Profit from Falling Cryptocurrencies Prices
Bitcoin sinks below $40,000 and critics think it is over but smart investors know the game is just starting. The rule of the game hasn’t changed, though – buy the dip.
Here is the thing: The recent crypto market dip and the ongoing uncertainty among investors makes a possibility of a further decline in cryptocurrency prices. You hear that right.
Prices of cryptoassets could drop further and that’s why the market exists in the first place. No market –stock, bonds, others- make upward trajectory forever. While there’s always a chance the Bull Run continues, it’s worth knowing how you may profit also when the market is going down.
Often, beginner traders misunderstand “selling” with “closing a position”. This creates confusion about “how can I sell if I don’t own the asset”. That’s the beauty of short-selling.
Short-selling is a speculation on the decline of an assets’ price – you are selling a borrowed asset when you believe that its price will go down, selling it later to make a profit. Read: Nigerian Exchange Sinks as Investors Sustain Selloffs
BITCOIN SHORT SELLING
Let’s say Bitcoin trades at $31,769 and you think the price will go down / fall. You tap the “SELL” button and short-sell 0.1 Bitcoin using $3,176.9 of your own money.
Assuming that Bitcoin falls to $30,000, you will make a profit of $176.9 (($31,769-$30,000) * 0.1). In other words, you lent 0.1 of Bitcoin at $31,769 and bought it back at $30,000, so you keep the profit of $176.9.
However, if Bitcoin rises to, for example, $32,000, you will face a loss of $23.1 (($32,000-$31,769)*0.1) as you have to “buy back” the 0.1 Bitcoin at a higher price.
HOW TO SHORT-SELL CAREFULLY
- Consider timing – there are times in the market when conditions for short-selling improve, for example, during a Bear Market
- Mind your position size. All in all, short-selling takes the trading experience to a completely new extent, as you can make money even when the asset drops in price.
