Fans of Ethereum, the smart-contract enabled blockchain, have seen the value of its internal cryptocurrency, Ether (ETH) fall by more than 25% from around $11 to just about $7.50 over the past few weeks. At the same time, rival digital currency Bitcoin (BTC) has gained 6.5% over the past month. Some are guessing that a series of flaws and setbacks in the Ethereum code and security breaches are finally undermining its value and see its price falling further. For those looking to profit from falling ETH prices, here is how to short it. (See also: Bitcoin Vs Ethereum: Driven by Different Purposes)

Shorting using Margin on Exchanges

For people who want to profit from a falling price, short selling is an option where you borrow some ETH that you don't already own from somebody who does, then sell it in the market, hoping to buy it back at a lower price. A number of online cryptocurrency exchanges offer margin facilities to enable that borrowing. Some exchanges lend directly using their existing stock of cryptocurrency, while others arrangeĀ  peer to peer credit from other users. For example. the exchanges Poloniex and Kraken offer P2P arrangements while BTC-e offers direct margin lending. (For more, see: What is Ethereum?)

Taking a Short by Going Long Elsewhere

Often, ETH trades in currency pairs against other cryptocurrencies and not just national currencies such as dollars or euros. A trader who feels ETH will go down in value relative to Bitcoin could simply buy Bitcoin and exchange it for ETH (BTC/ETH) after it has gone down in value. While this isn't exactly shorting, it can allow profits from a falling price in ETH.

The Bottom Line

Ethereum's cryptocurrency, Ether, has lost more than 25% of its value recently, and some believe that the bear run may continue. For those seeking to profit from a falling price, various online exchanges offer short selling using margin. Alternatively, traders can simply take the other side of ETH/another digital currency pairs.

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