Most financial traders assume that Bitcoin prices will never fall over the long-term. But what about the ‘non-believers’ who think it is one big Ponzi scheme? No faith in Bitcoin? Profit from shorting it. This article is for those would-be shorters. The following simple guide will explain in detail on how you make a decent profit out of shorting Bitcoins.

Bitcoins Demystified

In simple terms, Bitcoins are a form of digital currency that is generated by sophisticated software applications, which also regulates and monitors the transfer of funds. They function as private currency that is free of manipulation, and central bank control. There are no physical Bitcoins; only balances are maintained in a public ledger, along with all the transactions, that are verified by enormous amounts of computing technology. Since this currency is not regulated by the any nodal government agency, Bitcoin trading does not fall under the purview of the Securities and Exchange Commission (SEC). As such, it is often thought of as a risky venture. However, there are some reputable Bitcoin trading platforms that make it possible for an ordinary trader to buy and sell them.

How to Short Bitcoins

Depending on a trader’s preferences, there are two available options for shorting Bitcoins.

1. Private Transaction

You can simply find a friend, neighbour, colleague or relative who holds a big chunk of Bitcoins and negotiate a private deal. Since you know the person you are dealing with, this is a much safer option. Before entering into a private transaction, be sure to check that the Bitcoin contract is enforceable by law.

2. Bitcoin Transaction Through a Trading Platform

There are innumerable Bitcoin exchanges and trading platforms all around the world. Before selecting a trading platform, you need to ensure that it offers conducive terms and conditions. Below is a list of the most popular Bitcoin trading platforms:

• Bitfinex.com

How Bitcoin Shorting Works

When a trader shorts a Bitcoin, he borrows a specified amount of Bitcoin over a fixed period of time, and pays an interest to the lender. Lenders can be a Bitcoin exchange or other Bitcoin traders. Once the lender transfers the required Bitcoins to the trader, he or she can sell them in return for dollars, or any other preferred currency. A trader shorts an asset expecting prices to drop within the time-frame specified in the contract. If the exchange rate of the Bitcoin drops before the expiry of the contract, a trader can profit by spending some dollars to buy the exact number of Bitcoins that was borrowed at the current price, and transfer them to the lender.