Bitcoin Forum

This topic is supposed to be a place for discussing a very important issue, that of short-selling and its effects on Bitcoin's price and ultimately its fate (yes, it may be that important). I have to say right at the outset that I don't have a definitive answer to the question of whether Bitcoin short selling hurts it and if it does, how much

A month or so ago, when Bitcoin was in what can be described as a free fall, many people here were recommending to move coins out of exchanges as these coins had been allegedly fueling massive short-selling and thus contributing to further downfall of Bitcoin's price. Personally, I have no doubts that there is an element of truth in these claims as I'm often shorting myself and can say from first hand experience that shorts do drive prices down

And while short-term effects of short-selling (pardon the pun) seem to be abundantly clear and not really a point of debate (but you are welcome provided you actually have to say something worthy of debating), the long-term effects of shorts are not so obvious. While many might think they have only negative consequences, there should be some that don't support this view or have certain reservations about this matter

https://s41.radikal.ru/i094/1709/f5/d25298ab3351.jpg

So is massive short-selling good or bad for Bitcoin or is it in fact completely irrelevant in the long run?

sell fast if you get a profit, of course, it doesn't matter because you can get results, and when you don't get a profit, it's better to hold on to the right time to make a sale.

Broken bot?


Have you read the OP?


Short-shelling (either margin or simply dumping) is inherently part of the market, and it can hurt any asset, not only Bitcoin. Looking at price history, we can see massive dump or pump for Bitcoin, roughly every 4 years. Tbh there is no one who knows whether this action will be relevant or not for the future, but someone might argue that if we hold the $3k level it could provide massive support for the future (TA wise).

Bear and bull will come and go in every asset. If you need to cut loss, then you can sell, but if you think holding won't hurt you even if the price fell as low as $0, then holding might be your choice.

I wouldn't equal selling on margin and dumping your own coins

When you sell your own coins, you are basically done as you can't sell what you don't have already. But when you are selling on margin, it is a completely different situation and environment. Essentially, you are selling the coins you don't have. But that's not even the biggest issue here. These coins can in fact be used for driving prices down further because you can sell them numerous times. Indeed, you can say that whoever bought your coins can sell them too but in general it wouldn't be a rational act as in that case they would be better off by not buying them at all in the first place

And it is conceptually different with selling coins on margin since there is a clear financial incentive to go short-selling in a bear market. It is still not the same as selling your own coins and buying back at a lower price as in the latter case you would be minimizing your losses, not maximizing your profits (as with short-selling)

Bitcoin is very short at the moment, buy 3 BTC at the moment, sell when it rises to the level of 5%, buy more when it drops 5% again, the short-term investment system is right now. Continue.

It won't be irrelevant, but it would be very stupid to hold a long term short position on a deflationary cryptocurrency that has only been rising since the first day its market was created.

https://pbs.twimg.com/media/Dvbys5oWoAEFhCE?format=jpg&name=large

Past performance is not indicative of future outcomes

As I already answered in another thread, people in the dotcom era were likely thinking the same about startups which had been only rising since the first day they were created (when everything around these people had already started to fall apart). Anyway, it is not a question of whether to short Bitcoin or not, this topic is about understanding how short-selling, that is, selling borrowed coins, affects prices. Not that it would matter a lot here, but Bitcoin is still inflationary

The most important thing, for now, is safe your capital. we never know how many people are greedy in the crypto world. at least the short term can be used for this moment. even though only 5-10% can take profit better than having to lose more.

Reading the recent happenings in the world of cryptocurrencies it come to my notice that short selling is the best for now because of the  short rise and fall on daily basis. At a time last year i bought some fractions of bitcoin for hold in long term but seriously i ran at lose even the capital was lost too which i regretted. This year will be short selling if there is a little gain from the investment, don't want to take the risk again.

It is inflationary, but not in the same way like the fiat monetary system is inflationary, whimmed by some people on top of a building somewhere.

I believe the effects of short-selling in Bitcoin are negligent if you zoom out enough. Bitcoin demand has a lot of potential to grow, and there is not enough supply to cover the demand. We might only be starting to scratch the surface.

I can't say that I strongly disagree

If you zoom out enough, it may well be so, i.e. shorts become inconsequential (as this is what I think myself). But this assumes there is enough demand in the first place to make naked shorting a losing business as someone who tried to short Bitcoin in late 2016 (if I'm not mistaken) lost around 300 bitcoins only to have his short position liquidated. But with no demand, shorts are just accelerating the process which would go on its own even without them

With that said, though, we still can't discard the fact that you short with coins borrowed, i.e. with someone else's coins who is taking kinda counter-short position. Really, if you had bitcoins and expected the price to fall, it would make sense to sell them, not lend. But if you expect the price to grow, lending them and earning interest makes sense, after all. This is where things get complicated

What kind of "demand" are we talking about? Short term demand, long term demand? Because Bitcoin has not reached its full potential in dark market commerce yet in my opinion.


Zoom out, it would depend on the time-frame.

In this case it doesn't matter

Because to make shorting (short selling specifically) a losing business the demand should be sufficient to trigger a forced liquidation of these shorts. As you can see, time is not one of the variables at play here. You just need the price to make an abrupt movement to the upside to catch short traders unprepared. Basically, this is what short squeezes are about, i.e. about making short sellers cover their positions at a loss due to a sudden excess of demand (or have these positions liquidated by the exchange itself)


No, it doesn't. The profits earned as well as losses incurred remain the same irrespective of the timeframe in which they occurred

Maybe I got confused. Ok, if my time-frame is "HODL", and expect Bitcoin to be in 6 figures by 2025, wouldn't it make more sense to lend them than do a more active style of trading?

No, it wouldn't make much sense

Quite the contrary, it doesn't make any sense unless you feel completely averse to trading. If you are going to lend these bitcoins, the interest rates you are likely to receive will be miserable, something like 1% annually. Add to this the risk of exchange scamming (not uncommon in this world), you will see why it is not worth the money accumulated. On the other hand, you can day trade with a minor part of your stash, keeping the rest of your coins in a personal wallet and still be better off profit-wise (and still more so if you expect Bitcoin to be 6 digits by 2025)

Ok, I'm now not sure if I understand what the whole topic is. Haha sorry.

But if it includes day trading, then I believe it comes with more risk, and would depend on skill, luck, experience, and everything else that separates a winner from a loser. Maybe as a default, the "HODL" is best for most.

No need to be sorry, you can't understand everything

But it is quite simple really. If it is not profitable to lend, it turns quite profitable to borrow, whether the market is rising or falling. In the case of market rising, you borrow to open a long position (yes, it is not just about short selling). On the other hand, if the market is falling, you borrow to open a short position, i.e. sell on margin. And this is exactly what the whole topic is about, i.e. on short selling. Pretty simple, isn't it?

I always sell my cryptocurrencies in the right time so once I sell it I will not have any regrets that I sell it. In addition to that, at this current situation of market I am in the process of holding because the price is totally down and I do not want to cut my losses so I will hold it.

It's too low to sell and therefore I don't choose to sell even if the reason is cutting losses. I am more patient to wait for the price to increase better, and as long as I still have patience then I keep holding.

There are always going to be short positions being taken out when people think prices are going to go down, which can lead to further price decreases. That's just how it works. It's not just bitcoin but it happens in stocks, derivatives, anything that can be traded on an exchange essentially.

It's obvious that this drives prices down in the short run. However, I don't believe that it is necessarily harmful in any way in either the short or long runs.

What matters in the long run is the fundamentals of bitcoin, whether the network is functional or has improved, whether people still see utility in bitcoin as a store of value and currency, and whether adoption has increased or not. Thus, short term price swings that are caused by people trading on leverage or shorting the market shouldn't really do much in the long term, as it doesn't influence the fundamentals whatsoever.

I see your point and I mostly agree with it

Nevertheless, your last claim can in fact be challenged in a meaningful way. You basically say that shorts don't affect Bitcoin fundamentals, but that remains to be inspected further. For example, you say that utility in Bitcoin as a store of value and as a currency are two elements of these fundamentals. But you can't deny that shorts add to volatility while volatility is totally incompatible with Bitcoin being a store of value and a currency. In this manner, you can't actually say that shorts don't affect Bitcoin fundamentals. The same with real world adoption (whatever you may mean by this) as volatility is definitely not good for it either

Shorting a currency does not always result in a drop in it's price, if it did everyone would be shorting and getting profit off their investments. I believe short term traders predict a possible drop in the price and take advantage of it rather than causing the drop by selling their holdings.
I am not an expert trader and do not have deep knowledge about the trades and how actions affect the market.

mostly they are those who watch the market all day long that they were able to see which coin have enough potential. This time not all crypto increases some keep on dips that why short selling is quite risky.

It all eventually comes down to the balance of supply and demand

And short-selling adds to supply (i.e. someone selling, as the term itself suggests), so if it doesn't result in a price drop, it just means that the amount sold is either too small to make a dent in the Bid side of the orderbook or it is offset by someone else's buy orders eating into the Ask side of the orderbook. If no one is actively buying (beyond matching the selling orders, obviously), selling always leads to a price drop in the end. There is simply no other way about it, and it doesn't matter whether it is short selling or long selling, so to speak

Short selling exists for many reasons. One of them is actually to provide liquidity to the markets. Another is for the broker/exchange because they earn fees and interest of the borrowed asset.

Many people feel that short selling is "free money" however in my opinion its harder making money as a bear in a bear market than it is making money as a bull in a bull market. One reason is that whenever you go short, you need to pay interest since you are borrowing the asset from someone. Another reason is that price can go up to infinity but the lowest point is $0, so your risk is essentially unlimited.

Unless you were a bear that shorted at $6000 back in November (which I am sure is limited to a small group of individuals) shorting the low in the $3xxx would of proven to be very difficult since we are trading sideways for the last month or so.

You also need to realise that every bear knows that eventually Bitcoin will find a bottom and it might head to a new ATH, and even if it takes a small $500 or $1000 day to realise, they will get scared and cover and cause price to rise, basically a short squeeze.

That's why I love seeing shorts pile up on Bitfinex. It's fuel for the rocket. BTC margin funding was setting all-time highs at the December bottom, and I'm sure that's one reason why we bounced past $4,000 so quickly. It was a classic short squeeze.

We unfortunately don't have high levels of shorts right now. Less than 25,000 BTC borrowed at the moment.

It is so in theory

But in practice there is not much difference. Whether you are short or long, you should use stop-losses, and when you use them, it doesn't really matter how short or long you are (pardon the pun). Although it is definitely true that there is no limit for the price to rise while it can't fall below 0, try telling that to someone who bought a couple bitcoins at 20k. Apart from that, 3k is still a huge price. Just think about the rest of the pack at around ~100 dollars per coin in the best case (actually, only BCash at $120 and Ethereum at $110), so there's a lot of room to implode further


A good short squeeze is excellent fuel for the next wave of shorts

The difference between short selling and long is that long has an option of just "buying". Like if you think bitcoin will go up instead of doing long you can just go out there and buy bitcoin, which means the same except the leverage. Short doesn't have that option, there is no just buying a anti-bitcoin or whatever hence long is a bit different than short. Its less risky for the long people. Short on the other hand has leverages, margins and liquidations and many more stuff that makes it riskier.

There is literally a chance of shorting bitcoin today and as soon as it increases 5% you will lose ALL your money, like ALL, you don't have that type of troubles when buying bitcoin and storing somewhere, bitcoin went from 20 thousand to 3.5 thousand and its still not all lost, just most lost, however on shorting you can have ALL lost instead.

The only thing I can think of is that people assume that the price will come down again since traders with shorts are forced to buy up the price, and the rest of the market will use it as an opportunity to secure profits.

On the other hand, you are at risk of seeing the price pump well beyond what you believed would be a great entry point for your short, especially when it's the exchange itself trying to get rid of people's positions.

BitMEX is known to trade against their users, so there is all the incentive they need to liquidate unprofitable positions to protect themselves. I'm quite sure that every exchange has a similar form of internal market making bot running.

No, this is not a real difference

I mean, not in practice. In real life, the trees don't grow to the sky, so while you have a certain price at which your short position will be liquidated (if we talk about naked shorts), it is basically the same as 0 for longs. You can say that if this price is too high, then the whole idea of shorting becomes meaningless, and I would likely agree with that but will also add that it is not particularly different from just "buying" at 20k and holding at 3k. In fact, there is an anti-bitcoin. It is covered shorts which you can hold indefinitely long


What you speak about refers only to naked shorts but covered shorts have the same effect on the market price as the naked ones but without this "short-coming" (pardon the pun)

Actually, it is hard to secure your capital when you do investment or trading in cryptocurrencies because all of the coins are volatile. I prefer long selling where I can earn 50-60% even it takes to wait but its worth it once you earn huge income.

And to it, I think shorting also would generate more liquidity to the brokers or exchanges as the case may be since it involves not staying long in the market or waiting for lots of profit, and then, re-entrying again. In actual fact, it such practice should bring more gains to bitcoin.

I agree that shorts might in fact be adding more liquidity to the market

Though I don't see how they could add more gains to Bitcoin over long term. When you open a short position, this creates some selling pressure. It doesn't necessarily drive prices down as it may be offset by a rising demand but it exists. When you close a short position, this creates buying pressure. Again it doesn't necessarily lead to higher prices as it may be compensated by a rising supply. There could of course be other effects as things are never that simple in real life, but all in all, shorts should be inconsequential long term