On May 7, Bill Gates proclaimed on CNBC’s Squawk Box’ that he “would short [Bitcoin (available on Coinbase)] if there was an easy way to do it,” as he considers Bitcoin (available on Coinbase) to be “kind of a pure ‘greater fool theory’ type of investment”. This statement is somewhat surprising as there are actually several ways Bitcoin (available on Coinbase) bears can short the digital currency.
1. Shorting Bitcoin (available on Coinbase) futures on CME/CBOE
The easiest way for institutional investors to short Bitcoin (available on Coinbase) is to sell Bitcoin (available on Coinbase) futures on the CME and CBOE. Futures are standardized exchange-traded financial derivatives that obliGate an investor to buy or sell an underlying asset, such as a stock index, a commodity or a currency, at a predefined price and date in the future.
In other words, futures contracts enable investors to bet on the price increase or price decline of an asset without having to own it. Bitcoin (available on Coinbase) futures contracts, on both the CME and CBOE, for example, are cash for delivery, which means that once the contract has matured or is closed out no “physical” Bitcoin (available on Coinbase)s exchange hands. Instead, only the profit or loss of the trade is exchanged in US dollars.
Interestingly, a study by the Federal Reserve Bank of San Francisco suggests that the Q1/2018 Bitcoin (available on Coinbase) price correction was partly due to the introduction of Bitcoin (available on Coinbase) futures on the CME and CBOE.
The report stated: “Before December 2017, there was no market for Bitcoin (available on Coinbase) derivatives. This meant that it was extremely difficult, if not impossible, to bet on the decline in Bitcoin (available on Coinbase) price. […] With the introduction of Bitcoin (available on Coinbase) futures, pessimists could bet on a Bitcoin (available on Coinbase) price decline […]. They could sell a promise to deliver a Bitcoin (available on Coinbase) in a month’s time at a lower price than the current spot price and hope to buy a Bitcoin (available on Coinbase) during the month at an even lower price to make a profit.
The new investment opportunity led to a fall in demand in the spot Bitcoin (available on Coinbase) market and therefore a drop in price. With falling prices, pessimists started to make money on their bets, fueling further short selling and further downward pressure on prices.”
2. Shorting Bitcoin (available on Coinbase) CFDs on retail brokerages
If you are a retail investor and do not have an account with a broker that supports CME/CBOE Bitcoin (available on Coinbase) futures contracts, you can also easily short Bitcoin (available on Coinbase) using an online CFD broker such as eToro, AvaTrade or Plus500.
CFDs (contracts for difference) function effectively the same way as futures contracts but are tailored towards retail investors. Using CFDs, investors can bet on a price increase or decrease of an underlying asset without having to own it physically. 
Furthermore, since CFDs are leveraged products, investors can go long or short Bitcoin (available on Coinbase) using margin. That means, investors only have to put down a percentage of the total amount of the trade in order to open a position. This allows investors to magnify their returns if their bet pays off but also carries increased risk as losses are also magnified if the price moves in the other direction.
3. Shorting Bitcoin (available on Coinbase) tracker funds
European institutional and retail investors also have the option to short Bitcoin (available on Coinbase) using Bitcoin (available on Coinbase) exchange-traded notes. Currently, Bitcoin (available on Coinbase) ETNs can be found on the Stockholm-based NASdaq OMX exchange and come with either EUR or USD denomination.
Alternatively, if you are an accredited or an institutional investor in the U.S., you could also short the Bitcoin (available on Coinbase) Investment Trust (GBTC).
Having said that, Bitcoin (available on Coinbase) tracker funds usually trade at a premium to Bitcoin (available on Coinbase), so shorting tracker funds may not be as effective as shorting using futures or CFDs for example.
4. Short selling on cryptocurrency exchanges
For more advanced crypto asset investors who are comfortable trading on digital asset exchanges, there are several platforms that offer “physical” Bitcoin (available on Coinbase) short selling on margin. Poloniex, Kraken, GDAX, and Bitfinex are examples of popular exchanges that enable their users to short Bitcoin (available on Coinbase).
Shorting Bitcoin (available on Coinbase) on cryptocurrency exchanges functions in the same way as shorting Bitcoin (available on Coinbase) using CFDs — with the key difference being that you receive your profits in BTC as opposed to USD.
When short selling Bitcoin (available on Coinbase) on a cryptocurrency exchange, an investor is selling Bitcoin (available on Coinbase) they do not own. To do that, investors can borrow Bitcoin (available on Coinbase) from margin lenders on the exchange for the duration of the open position. Once investors close out their Bitcoin (available on Coinbase) short, they gain or lose the difference from where they sold and where they are buying back minus the margin lending fee, which differs from exchange to exchange.
Experienced cryptocurrency traders tend to prefer to short Bitcoin (available on Coinbase) on dedicated crypto asset exchanges. However, for investors who prefer to trade regulated financial products and are happy to receive their profits in fiat currency, Bitcoin (available on Coinbase) futures or CFD would be the better option.
5. Buying Bitcoin (available on Coinbase) put options
Finally, Bitcoin (available on Coinbase) bears who are comfortable dealing in more complex derivatives also have the option to buy Bitcoin (available on Coinbase) put options as a way to bet on a Bitcoin (available on Coinbase) price decline. Options are financial derivatives that give an investor the right but not the obligation to purchase a specific asset at a predefined price on a specific date. Call options give investors the right to buy the asset, while put options give investors the right to sell the asset.
Options are most commonly used for hedging in the commodity and currency markets by large corporations. However, speculators can also use them to bet on their market views.
For example, if you believe the price of Bitcoin (available on Coinbase) will collapse in the summer of 2018, you could purchase a three-month Bitcoin (available on Coinbase) put option on LedgerX with a strike price of $5,000. Should the price of Bitcoin (available on Coinbase) collapse to trade below the strike price at maturity, your put option is “in the money” and you will make a trading profit. Should the price remain higher, you simply lose the option premium (i.e. the fee you paid for the option).
Hence, while options are definitely for more advanced investors, they offer a low-cost alternative for betting on a Bitcoin (available on Coinbase) price collapse.
 WhETHer Bill Gates will actually put his money where his mouth is and short the world’s leading digital currency remains to be seen, but if he really wanted to, he could.
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