How to Short Crypto: Bitcoin and Ethereum

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Bitcoin, the world's largest and most popular cryptocurrency, has seen incredible growth over the past few years. However, as with any investment, there is always the risk of a downturn. One way to potentially profit from a downturn in crypto price is by shorting it.

What is Crypto Shorting?

Crypto Shorting, also known as short selling or going short, is a financial strategy where an investor borrows crypto, and sells it on the open market with the expectation that the price will decrease. If the price drops, the investor can buy back the same number of Cryptos at a lower price, return them to the lender, and pocket the difference as profit.

Best Platforms to Short Cryptocurrencies

#1. Covo Finance: Best for shorting crypto with up to 50X leverage

#2. Binance: Popular centralized Crypto margin trading platform

#3. Kraken: Well-established crypto exchange with good support

#4. Deribit: Crypto futures and options trading platform

#5. Bybit: New platform that offers High leverage on Crypto futures

Once you have found an exchange that allows you to short crypto, you must open an account and complete the necessary verification processes. You will also need enough funds to cover the cost of borrowing the crypto you plan to short.

How to Short Crypto

Shorting crypto refers to a trading strategy that allows traders to profit from a decrease in the value of a cryptocurrency. The idea behind shorting is to bet on the price of a cryptocurrency going down and then repurchase it at a lower price to make a profit.

#1. Bridge your crypto to Polygon

First, you must transfer your crypto assets from Ethereum to the Polygon network. Polygon is a fast, secure, low-cost alternative to the Ethereum network. By bridging your crypto to Polygon, you can access shorting platforms with lower transaction fees and shorter confirmation times.

#2. Visit Covo Finance and Connect your Wallet

Once you have transferred your crypto to Polygon, you can visit Covo Finance and connect your web3 wallet. Covo Finance is a decentralized leverage trading platform that allows shorting Bitcoin, Ethereum, Matic and other top cryptos. Connecting your wallet allows you to access the platform and start trading cryptocurrencies with leverage.

#3. Select Leverage and Submit Trade Size

Once you have connected your wallet, you can start trading cryptocurrencies with leverage. To do this, you must select the leverage you want to use and enter the collateral amount for the trade. Covo offers up to 50x leverage, allowing you to trade with 50 times the amount of capital you hold on Top currencies such as Bitcoin and Ethereum.

#4. Open Your Short Position

Once you have entered the collateral amount, you can start shorting any crypto. Covo Finance supports trading in various cryptocurrencies, including Bitcoin, Ethereum, Polygon, and others. You can take advantage of market movements and potentially increase your profits by shorting crypto. The platform also offers advanced trading features, such as stop-loss and take-profit orders, to help you manage your risk.

Shorting Cryptocurrencies: Detailed Guide For Beginners

To short crypto, traders need access to a margin trading platform that offers the option to short. Covo Finance is a decentralized spot and perpetual exchange that enables users to short significant cryptocurrencies such as Crypto, Ethereum, and Chainlink tokens directly from their crypto wallets. Covo supports low trading fees and zero price-impact trades for assets resembling the functionalities of centralized exchanges, while perpetual futures trading is available with up to 50x leverage.

To open short positions on Covo finance, users must use stablecoins, e.g., USDC, as collateral. If they use other tokens, Covo finance will swap to stablecoins. To open a position, users must click “Short” and enter the amount they want to pay and the leverage they want to use. For example, if a trader wants to short 0.1 ETH worth $352.33, they can open a 5x ETH (Ethereum) short position of $1752.89.

The “Entry Price” is $3541, and the Liquidation Price is $2903. Below the swap box, users would also see the “Exit Price,” the price used to calculate profits if they open and immediately close a position. The exit price will change with the token price they are shorting.

The trading fee to open a position is 0.1% of the position size. Similarly, there is a 0.1% fee when closing the position. A “Borrow Fee” is deducted at the start of every hour. “Borrow Fee” is the fee paid to the trade counterparty. The fee per hour will vary based on utilization. It is calculated as (assets borrowed) / (total assets in the pool) * 0.01%. The “Borrow Fee” for longing or shorting is shown below the swap box.

While there are no price impacts for trades, there can be slippage due to price movements between when your trade transaction is submitted and when it is confirmed on the blockchain. Slippage is the difference between the expected price of the trade and the execution price, and this can be customized by clicking on the icon next to your address at the top right of the page.

Shorting crypto, like any other type of trading, requires a certain level of expertise and understanding of the markets. It is not recommended for novice investors and should only be attempted by those with a solid experience of the risks involved.

In addition, it's also essential to have a risk management strategy and to use stop-loss orders to limit potential losses. A stop-loss order is an order that automatically closes a trade when the price reaches a certain level, thus minimizing possible losses.

Best strategies for shorting crypto

One of the most effective strategies for shorting crypto is combining technical and fundamental analysis. Technical analysis involves studying a specific cryptocurrency's historical price and trading volume data to identify patterns and predict future price movements. Fundamental analysis, on the other hand, involves studying a cryptocurrency's underlying technology and use case to assess its long-term potential. By combining both techniques, traders can understand the market and make more informed decisions.

It's also important to diversify your portfolio when shorting crypto. Diversifying your portfolio by shorting multiple cryptocurrencies can help mitigate risk and reduce the impact of a bad trade. Additionally, it's essential to keep an eye on the market conditions and be prepared to adjust your strategy when necessary.

Another strategy is short-term shorting, where you take a short position for a short period, usually days or weeks. This shorting type, also known as scalping, can be an effective way to make quick profits. However, this strategy requires a good understanding of market conditions and a high level of risk tolerance.

It's also important to remember that shorting is unsuitable for all investors. It requires a high level of risk tolerance and a strong understanding of market dynamics. If you're new to trading, starting with a more conservative approach, such as buying and holding, may be best.

F.A.Q

Which is the Best Platform to Short Crypto?

The best platform to short crypto depends on the specific needs and goals of the trader. However, COVO finance is a highly recommended platform for those looking to short crypto. COVO offers a user-friendly and secure platform for traders to short top cryptocurrencies such as Bitcoin, Ethereum, and Polygon, with up to 50x leverage. The platform also features advanced trading features such as stop-loss and take-profit orders and offers low fees compared to other platforms. In addition, COVO utilizes a multi-asset pool, COVOLP, which helps to minimize third-party custodial risk. COVO Finance's DeFi leverage trading platform is an excellent option for those looking to short crypto and maximize their returns.

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