Can You Short Crypto? The Complete Short Selling Guide

As a highly volatile realm that experiences unexpected ups and downs, various advanced tactics and precautions are needed to survive the cryptocurrency market. One of them is short selling, the exact opposite of creating a long position, primarily useful to hedge against a bear market.

This article acts as a detailed guide to short selling, explaining what it is, how it works, discussing its legality, outlining the risks, and providing additional valuable information. Without further ado, let’s get started.

What is Short Selling? Simple Explanation With an Example

Shorting, short selling, or taking a short position, is a trading function in which the investor bets that the price of an asset will decrease. The investor first borrows the asset from a supported exchange, immediately sells it at the current price, and waits for the price to fall so that the borrowed amount can be repaid and the difference can be realized as a profit. Short selling in crypto works similarly to traditional short selling, and it can be executed through futures contracts, margin trading, and options. Let’s get into an example of how shorting works.

• You short 1 BTC for $100,000
• The price of BTC drops to $90,000
• You close the short and receive a profit of $10,000

If the price goes up instead of dropping, you will start losing, and it can even exceed the invested funds if not closed. Short selling is a very risky strategy, and the highly volatile nature of the crypto market makes it suitable only for experienced traders. Fundamentally, it is based on a bearish outlook of the crypto market, extremely beneficial to hedge against a market downtrend, but it is not recommended for beginners.

Is Crypto Shorting Legal in the United States?

Shorting cryptocurrencies is legal in the United States, but there are several restrictions for retail investors due to the extreme risks associated with it. According to the Commodity Exchange Act (CEA), which took effect on June 23, 2021, Participants should have at least $10 million in assets to qualify as Eligible Contract Participants (ECPs) for certain derivatives trading; however, retail investors can still engage in short selling through exchanges and DeFi platforms under regulated conditions. It omits small-scale traders and allows institutional and professional investors to partake under controlled conditions. In addition, the U.S has restricted the shorting feature of various international crypto platforms due to concerns about transparency and systemic risk.

While short selling is highly regulated in the U.S., retail traders bypass these hurdles by engaging with decentralized finance (DeFi) platforms. Various DeFi networks allow leveraged trading and short selling, but the risk is high due to the unregulated nature of these platforms and the lack of governance or audit by the authorities. The platforms regulated by the Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC) include CME Bitcoin Futures, LedgerX Options, Inverse ETFs (BITI), and Kraken Margin.

Is it the Best Time to Short Crypto? November 21, 2025

Since the crypto market has been witnessing a downtrend in recent days, various traders have made a profit from shorting. The $2.7 trillion S&P 500 wipeout and the plunge of crypto market capitalization from the all-time high (ATH) of $4.2 trillion to $2.9 trillion indicate that a global financial correction is ongoing. Those who shorted Bitcoin from its ATH of $126K are in high profit right now, and major altcoins such as ETH, XRP, ADA, DOGE, SOL, and BNB are also in a similar plunge.

While the technical analysis and various expert predictions suggest further downtrend for major coins, there is also a high possibility for a short squeeze, as witnessed in the ZEC charts. A whale recently shorted ZEC with the expectation that its bull run is over, but lost a total of $60 million yesterday. 

THE WHALE SHORTING $60M ZEC HAS BEEN FULLY LIQUIDATED

The whale controlling the 3 HL accounts leverage shorting a total $60M of ZEC has just been liquidated. He lost a total of $5.5M attempting to time the top of ZEC.

RIP a fallen soldier. pic.twitter.com/HC3ssPw9TE

— Arkham (@arkham) November 20, 2025

As a volatile and uncertain situation, shorting is not recommended at the moment, but traders who are curious to try it out can engage in it with the funds they can afford to lose. Keep an eye on the latest happenings surrounding the asset you intend to short, because they can cause sudden price swings.

Different Ways to Short Bitcoin and Altcoins: Detailed Guide

You can short crypto via multiple ways, including Futures Contracts, Options Contracts, Contracts for Difference (CFDs), Perpetual swap contracts, and many more methods. After choosing any of these methods, you can add crypto funds and begin short selling. Let’s go deeper into each of them.

• Futures Contracts: It allows traders to bet on various cryptocurrencies through a simple and easy interface. Almost all the centralized and decentralized exchanges support futures trading.
• Options Contracts: Options are almost the same as the futures contracts, in which users can participate in a put option (to sell) for shorting, or a call option (to buy) to long.
• Contracts for Difference (CFDs): CFDs allow you to hedge against price fluctuations through short selling.
• Margin Trading: It is the same as the futures contracts, but occurs in the spot market, where you sell actual cryptocurrencies.
• Inverse ETFs (e.g., BITI): These exchange-traded products are designed in a way that the price will increase when Bitcoin falls. Users can purchase these ETFs to short.
• Synthetic Tokens (DeFi): Similar to inverse ETFs, various decentralized platforms provide synthetic tokens that allow inverse exposure to major crypto assets.

The Bottom Line: Things to Consider Before Shorting Crypto

Before accessing any of the shorting methods mentioned above, please check whether the jurisdiction you live in allows the specific trading method. In addition, don’t forget to set a ‘buy stop-loss order’ above your entry price to minimize the loss. Once again, only engage in short selling with the funds you can afford to lose. Also, try to do maximum research on your own before engaging in shorting.