Green is the new gold in the stock market. Green indicates that an asset is increasing in value. For many people, being green also entails generating a profit on their investments. This happened in the first half of 2021 when Dogecoin reached its highest value, far outpacing other major cryptocurrencies like Bitcoin and Ethereum.
Crypto experts still predict short-term volatility in the prices of Dogecoin. So is there a way to make a profit from the falling prices of cryptocurrency? The answer is yes! And you can do this by shorting Dogecoin.
In this article, we’ll answer all your questions related to shorting Dogecoin — from how to short Dogecoin to some tips that’ll let you short Dogecoin effectively.
What Does Shorting Dogecoin Mean?
Short selling, or shorting, is an investing strategy employed when you predict a drop in the price of an asset. You can use this investment strategy because you don't have enough money to acquire the asset and subsequently sell it for a profit.
Cryptocurrency may be shorted by anyone, and people who purchase and sell cryptocurrency can directly short their assets. Although not all investors agree with this approach.
To sum up, shorting Dogecoin is quite simple: sell off your Dogecoin at a profit and repurchase when the prices drop.
How To Short Dogecoin?
The goal of shorting Dogecoin is to increase your earnings by utilizing resources that you don't have. So how can you achieve this? Let’s dive into how to short Dogecoin!
Step 1: Trading Account
The first thing needed for shorting Dogecoin is a trading account. Here are some of the platforms that’ll allow you to short Dogecoin:
- Coinbase Pro
- Kraken and other accounts will allow you to short Dogecoin.
Essentially, the first step is to create an account in one of these crypto trading platforms.
Step 2: Futures
If you want to speculate on the Dogecoin asset's price falling, you'll need to buy USD Tether coins (USDT) to utilize for your futures contract.
- Type “DOGE” on the search bar.
- Tap the DOGE/USDT perpetual option
- Next, convert the USD that you have on your wallet to USDT.
- Then, on the cryptocurrency platform you’re using, move your USDT money to a futures wallet (USDS-M Futures wallet on Binance).
Pro Tip: If you don’t have USD in your account, you can sell Bitcoin or other assets to acquire USDT.
Step 3: Shorting Dogecoin
Now that you have USDT, return to the DOGE/USDT page on the website and select the Sell/Short option.
Shorting Vs. Margin Trading
Now that we know what is shorting and how to short Dogecoin, you might think it sounds very similar to margin trading.
Selling a cryptocurrency that you don't own is known as shorting it. Margin trading is when you borrow money from your broker to buy a cryptocurrency. The main distinction is that when you borrow money to purchase a cryptocurrency you must pay interest on the money that you borrowed. However, while shorting you just have to pay a small charge to the broker for their services.
Tips On How To Short Dogecoin
The tips below will help you in shorting Dogecoin in an effective and efficient manner.
1. Account Balance
While converting USD to USDT, if you don’t have USD on your account, you can sell Bitcoin or other assets to acquire USDT.
You can leverage your Dogecoin bet up to 50 times your initial investment. This means that if you have $100 to invest, you can invest on margin for up to $5,000 in the hopes of recouping that amount. It must be noted that leverage entails a higher level of risk. When you invest on margin, you run the danger of being liquidated, losing all of your money, and becoming in debt.
3. Margin Position
A cross position is a fairly dangerous move, as it implies you lose all of your money in your futures wallet if you short Dogecoin and the asset's value rises (which is against your favor).
An isolated position on the other hand means you'll only lose the amount you purchased for the futures contract. To avoid emptying your wallet, choose this option before finalizing your short position.
4. Maximize Profits
Dogecoin may be shorted for as low as $10, however, you can go much higher if you want to optimize your profit.
How to Analyze Dogecoin’s Price Movements
There are two ways to analyze the price movements of Dogecoin: technical or fundamental analysis. A lot of investors approach investments using both approaches, but Dogecoin doesn’t have a basis for fundamental analysis.
The reason behind this is that Dogecoin runs on hype. A simple Tweet or mention on Instagram results in major price upswings, even though the adoption of this coin is very low. As a matter of fact, as of 2022, there aren’t even 500 places across the globe where you can spend Dogecoin.
This is why you are better off using technical analysis since it shows where market psychology comes into the market. You can use simple trend lines or moving aging averages along with basic support and resistance.
As far as breaking news is concerned, you should be aware that when companies announce that they are willing to accept Dogecoin, it increases the prices, but for the short term. However, once the market calms down, there are short opportunities.
Pros of Shorting Dogecoin
One of the most prominent advantages of shorting Dogecoin is that it has been on a downward trend (at the time of writing this) for the past few months. That being said, there are a few more pros of shorting Dogecoin:
- Profits: Whenever Dogecoin is bearish, you can make a profit from falling prices
- Questions of viability: People ask whether Dogecoin has any real value or not. The answer is that an unlimited amount of coins are being printed over the long term, making it an inflationary coin.
- It’s a “meme coin”: The developer of Dogecoin admitted that this coin has no actual use. However, social media noise gives it wild ups and downs. Simply put, you can take advantage of unsophisticated positions.
Cons of Shorting Dogecoin
Even though you can make a good amount of money from shorting Dogecoin, there are some risks involved in this endeavor.
- It’s a “meme coin”: Ironically, this one is both a pro and a con for short-sellers. With just a random social media post, the price of Dogecoin can skyrocket suddenly.
- Shorting is always dangerous: You can always protect yourself when you are short selling. In theory, however, the potential losses could be unlimited. This is a bit of an exaggeration, but it is theoretically possible. Especially with Dogecoin since there aren’t any constraints to the amount of printed Dogecoin.
The Bottom Line
Cryptocurrency is known for its volatility, and even the most experienced traders find it difficult to anticipate market values. While the profits from shorting Dogecoin might be substantial, the losses can be devastating.
You must take into account the various steps on how to short Dogecoin and the list of tips given in this article to effectively short Dogecoin and keep yourself from breaking an arm and a leg!