Bitcoin Loans, the safe way to Short Bitcoin

in #bitcoin5 years ago

Bitcoin (BTC) has been all the rage lately, but if you have used it or researched it, the logical conclusion is that, “Bitcoin is overvalued relative to other useful blockchains”.

Few facts about Bitcoin:

  • Slow
  • Expensive
  • Boring(besides the price).
  • LN (Lightning Network) is still 18 months away
  • Segwit + 1MB block cap (4MB but it never hardly gets past 1.3MB) have barely done anything to alleviate the increase in fees during periods of high volume..

Besides slow expensive transactions, I have yet to see another useful Bitcoin service.

But, defying all of these information, Bitcoin’s market cap continues to rise and dominate!! So, now, more than ever, is the time to sell overvalued BTC  into undervalued useful altcoins such as ETH, BCH, EOS, MKR, and arguably a few other good ones.  And’s collateralized BTC loans might just be the safest tool out there to do this trade.  

How to Short BTC / Altcoins safely

A famous quote:

“Markets can remain irrational longer than you can remain liquid”- John Maynard Keynes

Keeping the above quote in mind, it's important to take this trade on with conservative caution. And, in order to be conservative and cautious, it’s important to find the right tools for the job. Below is a comparison of the tools available for this task. `

Margin lending, High Volume but Risky way

The most popular and high volume way to do this trade would be margin lending. The process for doing this trade would be pretty simple.

  1. Deposit collateral Deposit in the form of USDT, BTC, or other supported altcoins into a margin lending exchange.
  2. Then short sell BTC on margin. This amounts to borrowing BTC against your collateral, than selling that BTC for another asset (likely USD). If your short is a success you can buy back the BTC you borrowed at a lower price later and keep the profits.

While margin lending is the most liquid and possibly the easiest way to short BTC,  there are some issues...  

Margin Call.

First is the risk of getting margin called and selling the bottom. This happens if your collateral falls below a certain threshold where you no longer have sufficient collateral, so it’s sold off in a market order. With cryptocurrencies history of “flash crashes” this should be a significant concern when trading on margin.

Unpredictable Funding Rates.

Another downfall of margin lending is unpredictable funding rates. This is less of a concern, but if you are not a day trader and trading a long term trend, this can add up quickly and become quite expensive.

During periods of high volatility or some sort of exchange risk, funding rates have gone up as high as 5%/day or (1852% APR). This of course was an exception, but even 100% APR for a few days can quickly make a decent trade unprofitable.


Bitcoin Loans, a Safer Alternative

Arguably the safest way to make a long term short position on Bitcoin is with a Bitcoin loan from Btcpop.  Due to Bitcoin’s nature as a P2P money, when it comes to getting a Bitcoin loan, P2P banking is a natural fit. Users keep control of their BTC and don’t turn it over to a banker like traditional banking models. is a P2P cryptocurrency lending platform  where unlike a bank where you meet with a banker and he/she tells you the terms, Btcpop has a P2P market where depositors choose on a case by case basis whether the risk/reward proposal is sufficient to fund your loan. This makes a win-win situation where depositors remain in control of their funds and only invest in proposals they deem worthwhile.


Set your own terms

The main benefit of taking out a Bitcoin loan to short Bitcoin is the ability to set your own terms and have a predictable payment and interest rate. For example, if you are trading the long term BTC/ETH pair and have a time preference of years instead of weeks or months for the trade, you can take out a long term loan at a set interest rate. In order to get funded at Btcpop you will probably have to put up collateral like margin lending, but unlike margin lending your collateral will have more flexibility and won’t carry the risk of being liquidated than on an exchange.


Short BTC to go Long (Buy) Other Coins

Bitcoin loans offer a P2P method of shorting the Bitcoin price against other assets. For example, if you are very bullish on ETH and Bearish on BTC you can satisfy both investments with one trade.

  1. Take out a Bitcoin loan.
  2. Use that Bitcoin to buy ETH in the common ETH/BTC trading pair.

At the time of writing ETH/BTC price is .021 BTC which is historically low 3 times ETH has rallied up to around .08 BTC or higher from around the .02 BTC price, which is a potential 400%+ gain. If this fits your risk reward tolerance and your willing to wait months for a larger cycle like this a 6-month. Btcpop loan would be a lot safer than margin lending for that length of time. This can of course be done for nearly any other cryptocurrency as BTC is a base trading pair for almost all of them. BCH, EOS, MKR, you name it they are all approaching or at historic lows relative to BTC.

Short BTC by Selling it to Fiat/Stablecoins

If you think the BTC price is too high relative to the USD, you can make a collateralized P2P loan for BTC, withdraw the BTC to sell for USD on another exchange, and then buy back the BTC later (hopefully at a lower price) to make your loan payments.   This is slightly riskier in the sense that USD is completely uncorrelated with BTC unlike altcoins. And History has shown that BTC/USD moves in massive volatile cycles and if you get on the wrong side of one, it could get expensive very quickly.   However, there are times like back when BTC was $20k that shorting BTC regardless of the risks can be very profitable. And if you don’t want to be margin called, a Bitcoin loan could be the safter long term trade option for you.   A BTC loan is beneficial in the long term trade because your funds won't be liquidated so long as you keep up on your payments. For example if you shorted BTC at 15k in December 2017 on margin, you would have likely gotten liquidated when BTC shot up to 20k. However, if you took a Bitcoin loan, you would have only had to make 1-2 payments while your trade was underwater, and then by January of 2018 your trade would have been back in profit and you never risked getting liquidated during this period..

Derivative trading, Most Risky

The last way to short BTC is to do it on a derivative platform such as Bitmex or Deribit. While these platforms are the most liquid place to trade and you can move massive volumes through them, I cannot recommend them as they have substantial systematic risk associated with them. As the actual BTC is not being traded, prices can be heavily manipulated which can cause unfair liquidations which has taken on the term “getting Rekt” due to unreal price movements. Bitmex, the most controversial of the platforms has regularly been under scrutiny for its practices as well as manipulation.

Practice Caution

None of the information above constitutes financial advice. Trading on leverage (taking out loans) especially with cryptocurrency is a very risky endeavor. While the profits can be enormous, the losses can be severe and instant.

This article is for informational purposes to share Bitcoin loans as a potentially safer alternative to getting (Rekt) or liquidated margin trading on an exchange. So, if you are aware of the risks and understand cryptocurrencies volatility. You can take the safest (still risky by most all investment metrics) approach to shorting Bitcion with a Bitcoin loan from Btcpop.  


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