How to take a correct position and earn money from a falling Bitcoin price? This is not so easy because there are no financial products on the market. Therefore, professional investors cannot use some tactics. Nevertheless, we chose five strategies to bet on the most popular digital currency in the world.
1. Bitcoin Margin Trading during falling Bitcoin price
Many trading platforms, for example, GDAX, allow margin trading in bitcoin. Today, traders usually use leverage when opening long positions. You can use it for uncoated sales with the same success as with any other asset. If during the time between selling Bitcoin and closing the position, the price falls, you will make a profit. Of course, you need to be careful. Many exchanges set limits on how much money should be in the account for margin trading.
Another problem is that traders can keep the margin positions open for a limited and rather short period of time (27 days in the case of GDAX). That means that you can bet on the drop of Bitcoin only if you are sure that this will happen quite soon. Otherwise you will have to cover the price increase out of your pocket.
2. Open a short position on the shares of Bitcoin Investment Trust
The US Securities and Exchange Commission rejected the bid of the Winklewoss twins to open a stock exchange for investment in Bitcoin. Equity fund shares could be traded on a large exchange. Ordinary investors could use their brokerage accounts to trade for a decrease in the same way as in the case of any other shares. Now the commission is reviewing the decision. However, Bitcoin Investment Trust remains the only alternative instrument.
As the name suggests, this is a trust that holds positions in Bitcoin. Similarly, it has its own pitfalls. GBTC cannot trade on large exchanges. The auctions are on the over-the-counter market. Large brokers allow investors to buy over-the-counter shares, but not for a downgrade. That makes GBTC difficult to use. Finally, the Bitcoin Trust’s share price does not really have a strict binding to the Bitcoin rate. The short position on these shares is not quite the same as the bet on falling Bitcoin price.
3. Buy derivatives on LedgerX (when they appear)
Experienced investors may wish to take advantage of options and other derivatives. Say, a trader could buy a put option to sell Bitcoin at his current rate. If the Bitcoin price fall continues, the option will start to rise in price. And, its owner will make a profit. These derivatives are not yet available. However, the situation should change in the near future.
In July, the Commodity Futures Trading Commission approved LedgerX bid to open a clearinghouse for cryptocurrency contracts including put and call options, swaps and more exotic derivatives. It is expected that LedgerX will begin work in the near future.
4. Ask Goldman Sachs to write you a contract
Of course, this approach does not work for a common person. As it turned out, investment banks like Goldman Sachs can make you a contract for almost anything.
Thus, a large investor who believes in the Bitcoin price fall, can get a contract that will allow him to bet on a specific result.
5. Select Stocks following Bitcoin price
Some capitalists believe that right now large investors in the cryptocurrency market do not have enough ways to apply hedging strategies. Therefore, it would be viable to form a basket of shares, the course of which more or less coincides with fluctuations in the Bitcoin prices, and use them when playing on a decline.
Alas, we don’t have enough confidence to choose such actions. The bottom line is that at the moment there is no easy way to play on the falling Bitcoin price – at least for ordinary investors. Very crude-minded traders can find ways to get their way. Otherwise, it is probably better to hold on to exchange-traded funds or derivatives.