How to Short Crypto: A Guide to Profiting from Price Drops

Do you know seasoned traders can generate massive profits even in a falling market? They do so by shorting crypto. For the layman, it means the trader is anticipating that the price will go down and bets as such at the market. However, it is an advanced technique that is not for the faint of heart.

While shorting crypto remains a difficult and risky process, 2025 is the perfect time to wrangle the bearish markets due to high market volatility. Tools like DeFi platforms have gotten extremely sophisticated over the years, and they can help manage your risk with the press of a button. But what does it mean to short crypto?

What Does It Mean to Short Crypto?

Shorting crypto or any asset means that you are betting that its price will go down in the future. It means buying or borrowing crypto at a high price and immediately selling it at a high price.

Then you wait for the price to go down and purchase the crypto or asset once the price drops. You will then return the crypto to the lender and net the profit that you made after paying royalties and legal fees.

Below is a simple chart explaining the difference between Short (sell high, buy low) and Long (buy low, sell high) approaches.

Strategy	Goal	First Action	Second Action	Profit
Long (buy low, sell high)	Price goes up	Buy at a low price	Sell at a high price	If the price goes up
Short (sell high, buy low)	Price goes down	Borrow and sell at a high price	Buy and return at a low price	If the price goes down

How to Short Crypto: A Step-by-Step Guide

Below is a detailed step-by-step process required to short crypto successfully.

1. Choose a trading platform that allows shorting crypto via margin or futures.
2. Create and fund your account by completing the verification process and depositing funds.
3. Navigate to the Margin section, as shorting doesn’t support spot trading.
4. In the next step, select the asset to short. Choose a cryptocurrency you believe will drop in price (e.g., BTC, ETH). Make sure to analyze charts and news to support your decision.
5. Make sure to set leverage at 5x or lower at least.
6. Place a short order instead of buying. Select the market type, and confirm the trade amount.
7. Add a stop-loss to limit potential losses and add a take-profit to automatically lock in gains.
8. Watch price movements and adjust stop-loss/take-profit as needed. Be ready for volatility and sudden reversals.
9. When the price drops to your target, buy back the asset or close the trade. Return the borrowed asset to the lender alongside their interest while you pocket the rest of the profits.

Different Methods You Can Use to Short Crypto

Shorting crypto can be done in more than one way. Below are five methods that you can use to short crypto and turn a profit.

1. Margin Trading on Centralized Exchanges

The best way to short crypto is by margin trading on centralized exchanges or CEX. This can be done by the following method.

Borrow crypto from the exchange and sell it immediately at the current market price. Wait for the price to drop to your desired level. Buy it back and return the asset to the lender. The difference will be your profit.

You can go from 2x to 100x leverage depending on the exchange you are dealing with. However, you must pay interest to the lender, and the exchange needs some collateral like USDT. If the market moves against you, the exchange will liquidate your funds.

2. Crypto Futures Contracts

A crypto future contract is an agreement between you and the lender to buy crypto or some assets at a specified date. If you are going short, this means buying the same crypto at a lower price than you sold it at previously. However, a date must be specified.

This is a complex process to understand, but it allows you to leverage and hedge without affecting your portfolio. You don’t own the crypto asset; however, if the market moves against you and doesn’t come down at the specified date, it can mean liquidation for you.

3. Inverse or Bear Tokens

Inverse or bear tokens are used by traders who don’t want you use margins or futures in the short position. These tokens are designed to profit from a falling cryptocurrency.

These tokens are specifically engineered to show a bearish attitude and work opposite to a cryptocurrency. If BTC falls by 5%, its inverse token will show a rise of ~5%. Some examples of these tokens are REKT, BEAR, SQQQ.

The biggest problem with the inverse token is its decay over time, and it doesn’t reflect a perfectly inverse value of a cryptocurrency, leading to confusion and even loss for traders looking to Short a cryptocurrency.

4. Options Trading

To short a crypto, you must use the put options. You put a strike price near the current market value of a cryptocurrency. If the market value falls below the strike price, it will result in your gain.

You can then sell the option or set a higher strike price to benefit from your options trading. If anything goes wrong in options trading, you will only lose your premium. Exchanges can’t liquidate your assets or forcibly close your assets.

5. DeFi Shorting

DeFi shorting allows you to short crypto with decentralized platforms without any middleman or KYC. This is an extremely powerful tool that gives you complete control over your asset.

In DeFi shorting, you borrow an asset, sell it at a high price, and then buy it back later at a lower price, while staying on the chain. This can be done by using protocols like dydX, Aave, or GMX, by linking your Metamask wallet to them.

The process remains the same. However, it cuts the middleman or the exchanges, and gives you full control over how you want to short a crypto.

Understanding the Risks Associated With Shorting Crypto

Shorting crypto is a risky endeavour and is not for the faint of heart. It is much more complex than the long position and can result in massive losses if you aren’t using leverages properly. You must understand the following risks before starting shorting crypto.

1. Market Volatility: Crypto markets are extremely volatile, and a single pump can make the crypto go way up than you are expecting it to. This can result in a massive loss.
2. Unlimited Loss Potential: There is a potential to lose an infinite amount of money in shorting crypto, as the prices can go infinitely higher than expected.
3. Leverage and Margin Calls: If you are using leverage, the potential to lose increases further if the market moves against you. This can result in liquidation immediately, or your collateral can be seized.
4. Platform Risks: DeFi platforms are prone to hacks and can result in loss of funds. Exchanges can also seize your funds.
5. Regulatory Uncertainty: Different countries have different laws regarding crypto. They can change those rules and ban your accounts with a single notice.
6. Complexity: Shorting crypto is a much more complex process than going long on it. It must have your undivided attention if you want to succeed.

When is the Right Time to Short Cryptocurrency

As shorting crypto is all about timing and deciding when it is at its peak to sell and when it is at its bottom to purchase again, you must look out for the following patterns to be victorious.

Technical Patterns

If you see a head (a peak) and a shoulder (between two lows), this is a classic indicator of a reversal. Two tops followed by a breakdown is known as a double top, and is an indicator for the bearish run.

If you see a rising wedge, a narrow price increase followed by a sharp drop, it also signals a bearish market. When price makes the highest highs while RSI or MACD makes the lowest lows, it is another technical pattern indicating the right time to short your crypto.

News and Fundamental Catalysts

If there are any bans, lawsuits, or new taxes imposed by governments, it can spook investors, signaling a bearish run. Any hacks on the exchange can also destroy the trust of investors immediately, leading to a sudden crash.

Hype Cycle Peaks

Crypto cycles are often driven by hype. You can see a peak when everyone around you, including your grandma, is buying a cryptocurrency. This is the peak time to borrow and sell as it also signals the upcoming fall for a bearish run.

Common Mistakes to Avoid When Shorting Crypto

Below are some mistakes that you should avoid while looking to short crypto. Following these guidelines will save you from major losses in the future.

1. Don’t overuse leverage. Stick with 2x to 5x in the beginning and only scale up if you are confident. Misusing leverage can result in the liquidation of your assets or the loss of your collateral.
2. Always use Stop-Loss orders when using a platform to short crypto. This will protect you from catastrophic losses and even prevent your account from being wiped out.
3. Avoid FOMO and panic flipping. Read the indicators before you sell or buy an asset.
4. Make sure the timing is right and always sell at the peak. If you sell too early, it can result in a loss.
5. Margins and futures eat into profits like nothing else. Make sure to borrow at a low interest rate or go with DeFi platforms for lower fees.
6. Read, read, read, and demo. Then invest. Make sure that you have a complete grip over all technical terms and know their purpose before you decide to dive into the bearish market.
7. Keep yourself updated with the latest forex news and government policies.
8. Don’t hold short crypto assets for too long. This is a rookie mistake and can cost you your capital if you do this.
9. Always use a maximum of 1-2% of your capital on a single trade. Don’t go higher than that. Betting everything on a single trade can prove catastrophic.

Learn More About Crypto Trading and Investment With Dypto Crypto

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We have a team of professionals to help the newcomers into the trading and crypto world. Why not join us and become a part of the winning team?

Frequently Asked Questions (FAQs)

Q: Can I short crypto without leverage?

A: Yes, you can short crypto without Leverage, but it works a bit differently. You must own the asset and can’t borrow it while shorting it without leverage.

Q: What’s the easiest way to short Bitcoin?

A: By using a Crypto Exchange with the built-in shorting process. For this purpose, you can use the Binance, KuCoin, and Kraken platforms.

Q: Is it possible to short crypto on Coinbase or Robinhood?

A: You can short crypto on Coinbase with the Futures Trading. However, Robinhood doesn’t offer short trading.

Q: Can you short crypto in DeFi?

A: Absolutely. You can use DeFi platforms like dYdX, GMX, and Aava to short crypto with fees lower than traditional crypto exchanges.