We have previously written about ways to invest in bitcoin. These articles implicitly assume that bitcoin prices will rise, at least over the long term. But what about the ‘non-believers,’ the naysayers, the people who have no faith in bitcoin and think the whole thing is one big Ponzi scheme? This article is for you. Here are some of options for shorting BTC. Keep in mind that these are not the only companies where you can short bitcoin but they are currently the most popular with traders. (For related reading, see: Why Is Bitcoin's Value So Volatile?)

Bitfinex.com

Bitfinex is a bitcoin trading platform owned and operated by iFinex Inc. based in the British Virgin Islands. The platform is fairly popular among day traders. Currently Bitfinex occupies the number three spot in trading volume, according to Bitcoincharts. The platform is at number one if you exclude the Chinese bitcoin exchanges. The company operates a peer-to-peer-based lending program. Users that think BTC will go down and want to short the cryptocurrency can ‘’borrow’’ the necessary bitcoins to do so from other Bitfinex clients. The interest rate for the ‘’loans’’ is determined by the market. You can view the current interest rate on their stats webpage.

As you can see above, there is also a market for USD loans. This is because the trading platform allows you to use leverage (currently set at maximum of 2.5:1). You can use the funds deposited at your Bitfinex account as collateral for loans. Keep in mind that using leverage magnifies losses as well as gains.

Another reason the platform is liked by day traders is their relatively low fees (for the bitcoin space). Bitfinex has different fees depending on whether you are taking liquidity out of the market, or adding to it by placing pending orders. The ‘’taker fee’’ is fixed at 0.2%. For market makers, there is a tiered fee structure that starts at 0.1% and goes all the way down to 0% if you have traded over 25,000 bitcoins in the last 30 days. Bitfinex does accept U.S. clients. (For related reading, see: What Maker-Taker Fees Mean To You.)

BTC-E.com

In terms of trading volume, this Bulgaria-based exchange is at the number five spot (number three, if we exclude the Chinese). It offers both leverage and shorting capabilities but unlike the peer-to-peer lending facility at Bitfinex, here you are ‘’trading against’’ the company itself. This has several important implications.

On the plus side, unlike at Bitfinex, with BTC-E you don’t pay any interest. This applies to both your long and short cryptocurrency positions. On the negative side, the fact that you are essentially trading against the company leads to potential conflicts of interest. BTC-E’s MetaTrader platform, which you have to use in order to have access to the leverage of 3:1 and shorting capabilities, has been known to shut down during highly volatile periods. The recent example of this was during the Aug. 18 flash crash. As bitcoin prices fell precipitously on the main exchange, trading was unavailable on the MT4 from 14:42 to 15:12 server time. To make matters worse, during this time period BTC/USD rose by $88, from $372 to $460. (For related reading, see: Basics for Buying and Investing in Bitcoin.)

Issues with BTC-E

A lot of traders still use BTC-E but it’s important to mention several ongoing issues with the company. No one knows wh the real owners behind BTC-E are. The headquarters of the company is likely in Bulgaria and the support staff seems more familiar with Russian than with English, but the rest is a mystery. In addition, the company operates a complicated deposit and withdrawal process that relays wires through several banks and payment processors before depositing them to your account. This may lead to severe headaches in situations where the deposit gets ‘’stuck’’ somewhere in the middle. While BTC-E does accept U.S. clients, starting from December 2013, the company stopped processing U.S. dollar wires coming from American citizens or any wires connected to a U.S. bank. (For related reading, see: What Is Bitcoin's Intrinsic Value?)

Fxopen.com

If you are worried about the anonymity of BTC-E, take a look at forex broker Fxopen. The crypto account offered by Fxopen is virtually the same as BTC-E’s MetaTrader account. It has a leverage of 3:1 with shorting capabilities and all the same crypto pairs are on offer. Fxopen has plenty of deposit/withdrawal options that include credit cards and cryptocurrencies like bitcoin, litecoin and namecoin. Unfortunately for our American friends, Fxopen does not accept U.S. clients.

Like what you're reading? I have a daily bitcoin trading idea column on Forex News.

Disclaimer: This information is intended for informational purposes only. Investing in cryptocurrencies is highly speculative. The value of bitcoin and other virtual currencies can substantially go up or down. Always consult with a qualified professional before making any investment decisions.

About the Author: Petar Kotevski is a forex trader and writer with nine years of experience in financial markets. He has been following bitcoin since 2010. Last year, Petar started getting more involved by writing articles for Forex News and Fit Small Business on bitcoin and other alternative currencies. 

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