The warning from banks that Bitcoin is a bubble about to burst has yet to deter the market but even in a bull market, money can be made shorting the cryptocurrency.
Sunday 26 November saw Bitcoin hit the $9,000 dollar mark for the first time, just a week after hitting $8,000. It rose again on Monday morning but has fallen back since.
At 08.45 Monday 27 November (yesterday) you could have shorted – sold – a single CFD in Bitcoin at $9657.40. If you had closed your position at 09.30 you would have made a tidy $171.95 from the fall in price.
Had you missed the bottom of the market you could have bought (closed your position) any time of the day on Monday and still returned a profit.
Going long could lead to losses
If at the peak Monday morning you had gone long on bitcoin, and bought the CFDs, you’d have made a similar sized loss.
Bitcoin does not only go up. Even when the trend is for it to rise there is so much volatility in the cryptocurrency market there are always significant periods where the bears in the market push the price down.
Similarly, on Sunday there was a sharp fall, despite the overall rise. If you had traded a single CFD going short – sold it – you’d have sold at 18.45 at $9301.35. You could have closed your position by buying again at 21.00 at $9200.85 making you a neat $100.50.
Even at 33.3% margin you would have had an initial outlay of $3,216 in Monday’s trading and $3,098 on Sunday, making you 5.3% and 3.2% returns in under two hours each time.
There have been several other slightly smaller drops in Bitcoin’s fortunes in between these two price drops, providing plenty of opportunities to short the cryptocurrency.
The key for traders in a volatile market is to spot when to trade long and when to trade short. In many rising markets the volatility presents opportunities for people to make a success from going short.
On Monday, European banks called for tougher regulation of Bitcoin and other cryptocurrencies because they fear they will be blamed – and have to bail out customers – when the bitcoin bubble bursts.
The banks remain convinced Bitcoin is a bubble and the price is due for a huge tumble. If – or when – that happens the short trader will be the profitable trader.
Even the more supportive head of the International Monetary Fund, Christine Lagarde, warned that Bitcoin's voliatility meant it could not yet be considered a proper currency.
Volatility opens up the prospect of making money from going short as well as long. At the time of publishing (Tuesday 09.15), Bitcoin is still well below its peak of Monday. The short trader would have been in the money.
NB. Past figures do not influence future performance.