If you are like me and think crypto is just one big Ponzi scheme waiting to collapse, then you might want to try to profit from its collapse. The problem is that markets can stay irrational longer than you can stay solvent. With the wild swings in BTC prices, unless you short in the right way, you could be wiped out by a spike, even if your thesis is correct.
As BTC is manipulated by Tether printing, expect big swings if you trade BTC directly. I would not recommend this.
An easier way is to short companies that have direct exposure to the crypto ecosystem. The main stocks are Coinbase and Microstrategy.
How to short stocks in Ireland.
As a retail investor in Ireland, I know of only 3 ways to short a stock.
1) Spread bet against the share price by selling
2) Buy put options on the stock
3) Sell call options on the stock
As 2 and 3 involve options and you have to pay 33% CGT, I choose to spread bet. Puts are safer as you can only lose your premium but I don’t know enough about how options are priced to make an informed decision about buying them. You can trade options on IG and Degiro.
Microstrategy looks ripe for shorting. Their CEO has gone all-in on BTC and has even borrowed more. He’s famously been quoted as saying
“Once you know how it all ends, the only use of time is…how do I buy more bitcoin? But take all your money and buy bitcoin. Then take all your time, figure out how to borrow more money to buy more bitcoin. Then take all your time and figure out what you can sell to buy bitcoin. And if you absolutely love the thing, that you don’t want to sell it, go mortgage your house and buy bitcoin with it. And if you’ve got a business that you love because your family works for the business and it’s in your family for 37 years, and you can’t bear to sell it, mortgage it, finance it, and convert the proceeds into the hardest money on earth, which is bitcoin.” – Michael Saylor
You can read more on the Doomberg Substack
The CEO has fully drunk the Bitcoin Kool-Aid. The problem is the stock is very volatile, so unless you have a lot of margin, it’s hard to safely trade. Also, IG wouldn’t let me open a new trade anyway.
So Short Coinbase
This leaves me with shorting Coinbase. Coinbase IPOed at the BTC peak and has dropped ever since.
No way is it worth $47 billion today. I managed to get in at $228.92 at 32c, so basically, for every 1c it drops, I make 32c. If it goes up though, I lose 32c for every day. I also have a daily finance cost which is charged at 2.5/365% (ie 2.5% a year charged daily). This has been about $0.7 per day so far.
As this is funded daily, there is no expiration. I can cash out any time and only pay the daily interest charge. I expect the price of Coinbase to drop significantly once the crypto fraud has been uncovered.
Big disclaimer here, I am not a financial advisor, please do your own research before committing anything. 71% of retail investors lose money.