How to Short Crypto in 2023

May 18, 2023
How to short sell crypto

Open a short position with YouHodler

Now that you know how to short crypto, put that knowledge into action! With YouHodler's MultiHODL feature and Loans feature, you can capitalize on market volatility and short crypto.

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. 

What does it mean to short crypto?

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 YouHodler, and buy the asset. Then, when the price rises later, the trader can sell it for a profit. 

On YouHodler, this can be achieved via the “chain of loans” method. This works as follows:

  • Use crypto as collateral to secure a cash loan
  • Use that cash to buy more crypto
  • Use that crypto as collateral for a second loan
  • Use that cash to buy more crypto
  • Usee that crypto as collateral for a third loan
  • Etc.

This flow is automated by using MultiHODL.

Suggested reading: Trading With Leverage: Risks vs. Benefits

Why do people short Bitcoin and other cryptocurrencies?

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.

Short crypto example

Let’s walk through an example of how you can short Bitcoin today. 

  • Say you have 5 Bitcoins when the price is $40,000
  • You want to short-sell them. 
  • This means you borrow 5 Bitcoins and sell them for a total of $200,000.
  • The price of Bitcoin drops to $35,000
  • You buy back the 5 Bitcoins to repay your loan at 5 x $35,000 = $175,000
  • Your total profit is $200,000 - $175,000 = $25,000

How to short crypto with MultiHODL

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 YouHodler’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.

  • Log into your YouHodler account and click the MultiHODL tab on the left.
  • Click the “Start new MultiHODL" button.
  • Choose what cryptocurrency pair to short in the drop-down menu at the top.
  • Click the red arrow for a short position (as seen in the image below).
  • Then, enter the collateral amount, in BTC or stablecoins you want to use for the short position and what multiplier level to set. The higher the multiplier level, the more loans you will receive and the more Bitcoin you can short. 
  • If you want, set the position as a pending order and manage risk with Take Profit and Stop Loss levels (as pictured below).

PRO TIP! To learn more about pending orders and why they are so helpful for crypto traders, check out this helpful article >>> CLICK HERE

  • That’s it! Your MultiHODL deal is ready to go. Give it a try today. 

Is it safe to short crypto or risky?

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.

Disclaimer: The content should not be construed as investment advice and does not constitute any offer or solicitation to offer or recommendation of any investment product. It is made available to you for information and/or education purposes only.

You should take independent investment advice from a professional in connection with, or independently research and verify any information that you find in the article and wish to rely upon.

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