HFM information and reviews
HFM
96%
FXCC information and reviews
FXCC
92%
FxPro information and reviews
FxPro
89%
FBS information and reviews
FBS
88%
XM information and reviews
XM
86%
NordFX information and reviews
NordFX
86%

Should you be shorting Bitcoin in 2022?


If there’s one rule retail traders should always follow when trading Bitcoin, or any other market, is simply to trade with the trend. Yet, trading with the trend and being able to identify the trend are two different things, especially when trading a highly volatile asset such as cryptocurrency pairs. Regardless of the high volatility in cryptocurrencies, however, Bitcoin and the crypto industry have managed to force a new perspective on the global financial system and the future of money. And being short on Bitcoin would seem out of touch especially with the current inflationary backdrop – at least in the long term.

So, while no one can accurately predict cryptocurrency prices, analysts expect Bitcoin and other cryptos to continue their upward trajectory. 

From infamy to mainstream adoption

Bitcoin skeptics and opponents have criticized crypto since its inception, and its association with dark web dealings didn’t help either. There’s also the issue of extreme volatility. After all, investing hard earned money in such a volatile asset doesn’t make sense – no matter how risk tolerant an investor you may be.  But, despite these issues, Bitcoin has triggered both a financial and cultural revolution. Headlines are buzzing about cryptocurrencies, DeFi (Decentralized Finance) and NFTs, while online communities dedicated to investing and personal finance are booming. There’s never been so much interest in trading cryptocurrencies from the public at large.

Cryptocurrencies have also managed to gain a lot of legitimacy as companies that are household names have introduced some form of cryptocurrency payment method on their platforms. 

Adding to its legitimacy, the governments of El Salvador and India have taken steps to regulate and tax cryptocurrency transactions. Also, while China has recently banned trading and mining cryptocurrencies across the board, its central bank launched their own version of a cryptocurrency - the digital renminbi - which has become the first national digital currency. 

Trading Bitcoin with CFDs

Despite this growing legitimacy, the infamous volatility of cryptocurrencies continues. Owning Bitcoin means you take the hit when the market takes a downturn. But choosing to speculate on Bitcoin’s movements with CFDs instead affords the opportunity to trade even when prices are falling. CFDs (contract for difference) are derivative assets that track the movements of the underlying instrument. They are available for a wide range of instruments including cryptocurrencies, as well as stocks, commodities and fiat currencies.

Trading a CFD means you can benefit from price movements in the underlying asset without owning it. This allows traders to profit even when the market is on a downtrend by going short, or selling their CFD. 

One of the greatest advantages of trading CFDs, however, is that they are traded on margin. Traders can take advantage of margin to open positions several times larger than their initial investment and enjoy greater returns. Of course, trading on margin also magnifies exposure to risk, and this is why a risk management strategy should be a priority for CFD traders.

The total exposure compared to the margin requirement for each CFD is also referred to as the leverage ratio. For example, trading Bitcoin with a leverage ratio of 1:5 allows traders to buy or sell $5,000 worth of Bitcoin with only $1,000 in their account. Exness clients have been enjoying a 1:200 leverage across a wide range of cryptocurrency pairs and recently the broker has also increased leverage for Bitcoin and Ethereum to 1:400. 

Should traders short Bitcoin or start preparing for another rally?

As far as the market outlook is concerned, it’s true that Bitcoin is highly volatile. But taking a step back and looking at the big picture, the volatility becomes mostly a short-term issue. And as any other market, Bitcoin enjoys cycles of appreciation and depreciation. For example, looking at the yearly time frame, one can see that prices are still trading in the same range as they did in the previous year. At the time of writing, BTCUSD is hovering between $44,000 and $41,000, while on February 16 - exactly one year ago - it was still changing hands near $45,000.  

This doesn’t mean that history will repeat itself, but the case can be made that volatility becomes an issue on shorter timeframes, similarly to any other asset.   Unlike fiat currencies, Bitcoin is finite – there will never be more than 21 million Bitcoin in existence – and 90% of Bitcoin’s maximum total supply has already been mined. While the currencies of major economies and most importantly the US dollar are struggling with record-high inflation rates, Bitcoin will never exceed this hard limit of 21 million. Therefore, the laws of supply and demand would call for prices to rise. 

Simply put, as long as Bitcoin is in high demand, its price on the global stage will rise due to its limited availability. Of course, whether Bitcoin will remain in demand is largely unknown, but cryptocurrencies have been used as a store of value since their inception and will likely continue to do so - against the advice of financial analysts. 

That being said, it’s important to note that volatility will likely continue to dominate in cryptocurrency markets for the foreseeable future. JPMorgan analysts argue that Bitcoin is already overpriced and place its fair value at $38,000. Also, the higher interest rates proposed by the Federal Reserve in the US will likely strengthen the US dollar, which in turn will pressure both commodity markets and cryptocurrencies.

Final thoughts

While shorting Bitcoin may be a viable strategy in the short-term, the big picture points to an uptrend as more money flows into the market from retail and institutional investors. Trading Bitcoin and other cryptocurrencies is a challenge for retail traders that focus on short-term trading strategies. These tend to be high-risk, high-reward and one of the reasons why trading crypto has become so popular.

Risk management rules should be the basis of any strategy with consistent results over the long-term and this is especially true for Bitcoin trading because of the extreme volatility and exposure to downside risk.  

#source


RELATED

Exchange Traded Funds (ETF) - Meaning, Types, Benefits

ETF funds may become a good alternative to stocks for those who have just turned their attention to earning on the stock market. We have decided to find out what ETFs are worth choosing...

NEO Price Prediction: Invest or Skip?

NEO isn't the most popular cryptocurrency, especially when compared to Bitcoin, Ethereum, Tether and Ripple. Currently, it's ranked only 26th by CoinMarketCap in terms of market capitalisation...

How to trade cryptocurrencies

Cryptocurrency trading has become highly popular over the past year. The crypto market has grown tremendously, with global market capitalisation reaching a trillion-dollar valuation.

Pros and Cons of Forex Crypto Trading

Bitcoin and some other cryptocurrencies regularly provide the opportunity to multiply a forex trader's capital. With digital currencies the...

Blockchain Beyond Cryptocurrencies

Blockchain has become one of the most influential technologies after being one of the key elements supporting digital currencies. It is the technology...

Telcoin: The Future of the Dark Horse of Cryptos

The cryptocurrency world famously has its ups and downs, and May 19 was not a good day. However, investors remain optimistic. Most cryptocurrencies already bounced...

Can ChatGPT trade better than humans?

AI machine learning models are a hot topic right now, and ChatGPT is the name on everyone’s lips. Some believe AI will inevitably lead to millions of job losses...

Security Tokens Versus Utility Tokens: Which Is Better?

The cryptocurrency industry is vast and diverse. There are DeFi tokens, non-fungible tokens (NFTs), Bitcoin, altcoins, and much more. The categories of crypto assets...

What is tokenomics? Understanding the token economy

With thousands of cryptocurrencies available, traders are beginning to think to themselves "What makes one crypto more valuable than another?" Tokenomics will help make sense of this.

Is it Still Smart to Trade in Precious Metals?

Is precious metal trading still traders’ choice? People have been putting value on precious metals since the beginning of time. The price of gold was $35 per ounce in 1971...

Forex Trading: A Comprehensive Guide

In the realm of global finance, several markets and assets beckon traders. Among these, the Forex market stands out, offering unique opportunities and challenges...

Litecoin records 4% gains

On February 26, only Litecoin and Ethereum amongst the 10 most valuable cryptocurrencies in the global market managed to record daily gains...

Slippage: How to Get Your Desirable Price

Slippage is a term that is used frequently in finance and applies to forex and stock markets. Slippage can bring you either loss or higher profit...

A Comprehensive Guide to Trading in Volatile Markets

Trading in volatile markets can be a challenging yet rewarding endeavor. To navigate these turbulent waters successfully, it's crucial to understand the dynamics at play, and one of the key tools for doing so is the VIX...

Libertex: Dash Price Prediction for 2021-2025

At one point, investments in Dash were highly profitable. Many traders received significant gains from the Dash cryptocurrency when the price action surpassed the $1,500...

Most Trending Currency Pairs in 2022

Are you one of the many beginners in online trading who are struggling to understand even the basics of the markets? Don’t worry, we know the feeling. One of the most common reasons why people hesitate to start trading...

What is paper trading?

The term 'paper trading' comes from the stock exchange market, where investors who wanted to practice would write their investments on paper...

All you need to know about cryptocurrency

The market of cryptocurrency is based on supply and demand; thus, it fluctuates widely. For instance, Bitcoin has experienced rapid spikes in December 2017 at $20K...

APR vs. APY in Crypto: A Comprehensive Guide

Cryptocurrency investments have become increasingly popular in recent years, attracting investors from all walks of life. As the crypto market continues to grow and evolve...

Different ways of investing in gold in these modern times

Gold is a bright, yellow, malleable and ductile metal found in nature. It is usually found in rock veins, gold nuggets, grains, electrum or alluvial gold...

Vantage information and reviews
Vantage
85%
FP Markets information and reviews
FP Markets
81%
IronFX information and reviews
IronFX
77%
T4Trade information and reviews
T4Trade
76%
Exness information and reviews
Exness
76%
Just2Trade information and reviews
Just2Trade
76%

© 2006-2025 Forex-Ratings.com

The usage of this website constitutes acceptance of the following legal information.
Any contracts of financial instruments offered to conclude bear high risks and may result in the full loss of the deposited funds. Prior to making transactions one should get acquainted with the risks to which they relate. All the information featured on the website (reviews, brokers' news, comments, analysis, quotes, forecasts or other information materials provided by Forex Ratings, as well as information provided by the partners), including graphical information about the forex companies, brokers and dealing desks, is intended solely for informational purposes, is not a means of advertising them, and doesn't imply direct instructions for investing. Forex Ratings shall not be liable for any loss, including unlimited loss of funds, which may arise directly or indirectly from the usage of this information. The editorial staff of the website does not bear any responsibility whatsoever for the content of the comments or reviews made by the site users about the forex companies. The entire responsibility for the contents rests with the commentators. Reprint of the materials is available only with the permission of the editorial staff.
We use cookies to improve your experience and to make your stay with us more comfortable. By using Forex-Ratings.com website you agree to the cookies policy.