Where would you go to short crypto? If the answer is "the Blockchain" then your numeraire has as much volatility as your asset. Was anyone signing real delayed delivery contracts for Tether with prices denominated in USD?
On a more retail scale you’re sort of gambling on the liquidity of an exchange, but if you want to hedge that buy puts on CoinBase or whatever.
The most liquid instrument in which you can go directionally short at retail size is a “perpetual swap”, which is kind of like a future but with important differences that are better explained elsewhere.
You can definity short XYZ coin if you want, and you can definitely hedge against the liquidity of the counter party at least roughly.
Any pointers?
I’m not aware of any law that stops you asking a friend to put a trade in on your behalf as long as you pay appropriate taxes.
Check with someone who knows before doing it though because I could be totally wrong!
If the derivative (“perp”) is trading above the underlying then longs pay shorts a fee on some cadence, making long positions progressively less attractive holdings and creating sell pressure. Vice versa.
This tends to push the derivative close to the underlying.
This has two big advantages and a shitload of problems. The two advantages are:
- short sentiment can be expressed without an up-front load, kinda like a put
- entering a position is much like a CME future, you don’t have to put up the whole price, just wherever geometric Brownian motion is likely to set you back (“implied leverage”)
Used responsibly this isn’t insane, but the ways it can be abused? Think housing never goes down in 2007.
Borrow the coin you want to short, then sell it, and you now have a short position on that coin.
If anything, the modern round of coins with smart contracts are probably uniquely suited to shorting, or enabling the shorting of other coins.
Decentralized platforms like DyDx offer leveraged longs/shorts on a lot of popular pairs as well
Another way to theoretically short a coin is to borrow a lot of it against a stable asset on any asset lending platform like AAVE
Great way to lose a lot of money fast if you don't know what you're doing.
[1] https://www.ledgerinsights.com/hedge-fund-makes-short-wager-...