With Cboe launching its futures markets and CME set to begin its bitcoin derivatives products next week, many people are speculating on individuals and organizations short selling the cryptocurrency. However, there already is a publicly traded bitcoin investment vehicle called the Bitcoin Trust (GBTC) that can be short sold as well. Although, those trying to short GBTC this year have been getting burned as GBTC short sales are down 217 percent.
Also Read: Lightning Network’s New Infrastructure and Interoperability
Traders Who Tried to Short Sell GBTC This Year Are Nursing Significant Losses
GBTC shares can be short sold but traders attempting to do so have been ‘losing their shirts’ this year according to financial analysts.
Futures markets are coming to bitcoin as the most prominent exchanges in the world are set to offer bitcoin-based derivatives products to mainstream investors. However, many bitcoiners are scared that ‘Wall Street types’ and other entities will ‘short’ bitcoin’s price value to oblivion. Short selling is when an investor or a group of people are motivated by the belief that bitcoin’s market price will go down in the future. Short traders then place a bet against bitcoin’s price in hopes it will drop. There are many reasons why investors would short sell bitcoin as the process can be lucrative if a person can predict large price dips. 2017 hasn’t been very favorable for those trying to short GBTC as the managing director at S3 Partners LLC, Ihor Dusaniwsky, explains many traders are getting burned.
For instance, a $1M short position created in September would net a loss of roughly $622,000 Dusaniwsky explains to the financial publication Market Watch.
“It has been brutal for bitcoin shorts. We estimate shorts are down about $46 million in year-to-date mark-to-market losses, or down 217%,” Dusaniwsky tells the financial news outlet.
Some Well-Known Short Sellers See an Opportunity With Bitcoin Markets
Even though short sellers have been nursing substantial losses this year, some traders are still taking their chances. According to the founder of Citron Research, Andrew Left, who is well known for placing extremely lucrative shorts against pharmaceutical company stocks, has revealed that he’s been short selling Bitcoin Trust shares. Left details to Market Watch that his shorts on bitcoin this year have been “very successful” and he plans to short GBTC again on the current BTC price run-up. Left emphasized why he believes it’s a good time to short GBTC stating;
I think the current spike in bitcoin is more due to manipulation and not the free market.
Paying a Premium to Ride the Bitcoin Roller Coaster
Another reason people believe shorting GBTC is risky is because the fees for entry are predominantly high. “New shorts are being charged 18.5% because the overall float is relatively small,” Dusaniwsky explains, and he believes the fees will rise by 50 percent annually.
“While the futures contract will allow easier and safer bitcoin short selling, it will also allow for easier and safer bitcoin long buying,” Dusaniwsky concludes.
Both sides will be paying a premium in order to ride the bitcoin roller coaster once the Cboe futures start trading.
What do you think about traders getting burned trying to short sell GBTC this year? Let us know in the comments below.
Images via Shutterstock, and Pixabay.
Do you like to research and read about Bitcoin technology? Check out Bitcoin.com’s Wiki page for an in-depth look at Bitcoin’s innovative technology and interesting history.