- Nick Burgess
How You Can Short Crypto On Robinhood: A Guide
The following article is for entertainment purposes only and should not be considered financial advice. For individual financial advice, please contact a licensed professional. Links below may be affiliate links, which generate a small commission for the site at no cost to you.
There's a phrase I'd like to coin that I'll refer to as "financial fuckaroundery." This is defined as the millennial urge to take a concept they've heard in financial media and apply it to the money they don't have. This is shortly followed by "financial found-outery" in which said millennial loses all the cash they didn't have.
You know the game. Is it YOLO'ing all of your hard earned Starbucks stars into Gamestop stock? How about using that shiny new margin account to buy your way into a naked put option and then the stock market rocks you like the hurricane Twisted Sister used to sing about? Well, it seems as though none of you have learned your lesson and you've now turned your ammoless guns on Robinhood's latest market development: the cryptocurrency markets. So when I was researching topics for today's article and "how to short cryptocurrency on Robinhood" began to flash like a warning signal on a sinking submarine, I decided to grab a life jacket and go swimming.
What Is Short Selling Cryptocurrency?
Short selling cryptocurrency is one of the highest-risk investment strategies you can undertake, but it can also be very profitable if done correctly. This strategy involves borrowing and selling cryptocurrency with the hope of buying it back at a lower price to make a profit. However, short selling can be risky, as the price of cryptocurrency is notoriously volatile and can rise unexpectedly, leading to potentially significant losses.
But why is short selling so risky? Imagine for a moment that you borrow a friend's iPhone and sell that iPhone to another friend. In addition to being a shitty friend, you've also just made money! You collected an item for nothing other than maybe a small fee your first friend charged you, and you collected the cash in the sale to the second friend. But you still owe that first friend the phone you borrowed, right? So ideally you'd be looking to buy the phone back from friend #2 in the future for less than you paid. You get to close this horrible loop you've started, while pocketing a small premium for yourself. This is the overall concept of a short position.
Well, the flip side of this situation is that you sell the phone to friend #2, and then the price of iPhones skyrocket because there's a shortage or they've released Vibrator 2.0 or something on it. Regardless, that will cost you more than you sold it for initially to buy it back, and you've lost money. Here's why short-selling is so risky: because there's a theoretically unlimited price difference between the initial buy and the market value of your short sale, the losses on your position could technically be infinite. This is why short selling should never be used by standard retail investors.
Now that I've described why you should never do this, here's how you could do this. These are your options if you really feel like you absolutely must short-sell Bitcoin.
One way to short sell cryptocurrency is through futures contracts. Futures contracts are agreements to buy or sell an asset at a specific price and date in the future. Short sellers can use futures contracts to bet on the price of cryptocurrency going down by selling futures contracts at the current price and then buying them back at a lower price later on. This can be a good option for traders who want to take advantage of short term price movements in the crypto market. However, the math on futures trading can get...murky. Remember the great oil futures debacle of 2020 when the prices in the futures market literally went negative, and oil producers had to pay consumers to take oil off their hands? Watch yourself if your engaging in the futures trade.
Another way to short sell cryptocurrency is through options contracts. Options contracts give buyers the right, but not the obligation, to buy or sell an underlying asset at a specific price on or before a specific date. Short sellers can use put options to bet on the price of cryptocurrency going down by buying put options at a specific price and then selling them back at a higher price if the price of cryptocurrency drops. This can be a good option for traders who want to make a profit while minimizing their risk through various strategies.
Short selling bitcoin can also be done through a brokerage account or trading platform. Many platforms, (not Robinhood), offer short selling as an option for traders. Traders can short sell bitcoin by placing a short sell order at a specific price and then buying back the bitcoin at a lower price later on. Margin trading is another way to short sell cryptocurrency.
Margin trading allows traders to borrow money from a cryptocurrency exchange to increase their trading power. Short sellers can use margin trading to short bitcoin by borrowing assets and then selling them at the current price. If the price of bitcoin drops, they can buy back the assets at a lower price and return them to the lender, keeping the difference as profit. However, margin trading can be very risky, as traders can lose more money than they initially invested. It's important to note, however, that Robinhood Gold (the millennial version of margin) does not allow cryptocurrency short-selling.
There are also different ways to short sell cryptocurrency using technical analysis. Technical analysis involves using past price and volume data to predict future price movements in the same way that a psychic on the side of the street can accurately predict your death based on which suit you drew from a deck of cards. Traders can use technical indicators to identify trends and patterns in the market and make trades based on these predictions. For example, a trader might use a limit order to automatically sell bitcoin at a specific price if the price drops below a certain level.
Binary Options Trading
Another option for short selling cryptocurrency is through binary options trading. Binary options are a type of financial product that allow traders to bet on the price of an asset going up or down. Short sellers can use binary options to bet on the price of cryptocurrency going down by buying a put option. If the price of the crypto drops below a specific price, the trader makes a profit. However, binary options trading can be very risky, as traders can lose all of their invested capital if their prediction is wrong.
How to Short Sell Crypto on Robinhood
So let's get down to it: can you do any of the above short selling strategies on Robinhood? Short-answer? Kind of. Let me explain.
Robinhood Crypto is not their main game, as they seem to prioritize traditional investing in things like mutual funds and fractional shares of Berkshire Hathaway Class A shares through their payment for order flow system. You see, crypto order routing is just not the same taint tickler as when Ken Griffin does it, so they don't really dabble in the dark arts of cryptocurrency short selling. There is, however, a backdoor into betting against crypto: Bitcoin ETF's.
Betting Against Bitcoin ETF's
Bitcoin ETF's were all the rage in early 2021. Institutions wanted a regulated way to get into the cryptocurrency hype machine without having to download Coinbase Pro, and Wall Street gave them what they want. However, these are not spot ETF's, meaning they do not trade in line with the price of Bitcoin. Oh no, that would be too easy! These trade against the prediction market, or the futures contracts being bought and sold around Bitcoin. As such, these bitches are all over the place from a volatility standpoint, which could make them good candidates if you really want to bet against them.
The first way to do this would be good old fashioned put options. You buy a put option and hope to Satan that the price of Bitcoin collapses like Spider-Man in Infinity War (spoilers). If you wanted to go full big-brained degenerate, you could also write call options on these ETF's and collect a small premium up front while taking on a shit load of risk in your crappy options trade.
The other way to do this is to just purchase an inverse of the Bitcoin ETF's. BITI is ProShare's short Bitcoin ETF that sells short Bitcoin inside of the ETF in an attempt to inverse the coin's performance. This would be one of the easiest ways to bet against the market price of Bitcoin going up. However, if you really wanted to go balls deep into risk in order to just feel something, you could put an options trade against the inverse ETF, or purchase a leveraged ETF. These strategies would look to amplify the results of your trade, meaning you could either buy a new house, or be forced into selling your current one.
Short selling cryptocurrency can be a good option for traders who want to take advantage of short-term price movements in the market. However, it is important to remember that short selling is a high-risk investment strategy that requires a lot of research and careful consideration. Traders should only engage in short selling if they fully understand the risks involved and have a solid understanding of the market and the factors that can affect the price of cryptocurrency.