The times of smooth bull runs are likely over now that it’s easier to short
People have been profiting from bitcoin’s volatility since February 2010, when the first official exchange appeared. At the time, it was not that easy to short bitcoin, with the first short trade taking place in an over-the-counter IRC channel in October that same year.
While selling an asset at a certain price as you expect it to drop from there, then buying back at a lower price level, is like a short position, a ‘true’ short trade means one is ‘short’ of an asset — something that requires borrowing the asset and then selling it.
It seems the first exchange offering such a service (albeit via Contracts For Difference, not through actual borrowing) was Bitcoinica — now defunct after several hacks — back in 2012. Since 2016, however, many exchanges provide numerous methods to short bitcoin.
You might be asking what’s the point of these three paragraphs? It’s the coincident fact that bitcoin’s top on December 17th happened on the same day as the launch of bitcoin futures by CME Group, an exchange where traditional finance players can short.
While other factors were at play — such as a similar futures contract being launched previously by CBOE to Bitcoin Cash’s claim for the crown - the case remains that as more people are provided with a way to short bitcoin, bull runs may become less straightforward.
All trading is risky, but shorting can be particularly hazardous. This is because in stock markets — and similarly in crypto markets — prices tend to drop more sharply than they rise, as investors react more negatively to fear than they do positively to greed.
It seems that was what happened over the night when bitcoin price plummeted nearly 10%, from £8.4k ($11.8k) to £7.7k ($10.7k) on the major exchanges.
Over the past couple of hours prices have managed to recover 3% already, but the rest of the market is still down 8% in USD terms and 5% in BTC terms. As Twitter sentiment is generally positive, this likely means traders are still fearful and not yet playing the alts game.
As some more bullish voices expect a new all-time high within two weeks — which we consider unlikely — it’s time for the waiting game again. If bitcoin goes up, there might be better opportunities for alts down the road. If not, continue your research!
Ari Paul — CIO of BlockTower Capital and a constant feature of our newsletter — will be answering questions in a deep dive at 19:00 GMT today at Token Daily.
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