Financial giants short Bitcoin: from $20,000 to $3,155

In the ten years since the birth of Bitcoin, there have been countless joys and sorrows. Some people became rich overnight, while others lost all their wealth.

The price of the currency fluctuates, who is manipulating it? Players have always been concerned about this.

In fact, behind this there are both long-term giants and short-term giants.

In the jungle society of the digital currency market, they either spread true or false news, deliberately pump or dump the market, or they identify the trend and stick to it.

Whether they are long or short, they always make a lot of money.

01 Short Bitcoin

"If the time is right, I will short Bitcoin." Microsoft co-founder Bill Gates said so in May 2018. He has always been pessimistic about Bitcoin.

In fact, there are many ways to short Bitcoin, and the principles are not complicated.

StreetAuthority is a financial information website. An author named David Goodboy published an article on it called "Five Ways to Short Bitcoin", which was translated into many languages ​​and widely circulated.

This article summarizes five ways to short Bitcoin: exchange spreads, shorting blockchain-related stocks, margin trading, Bitcoin futures contracts, and Bitcoin investment trusts.

On Youtube, video blogger I Love Crypto also launched a video titled "How To Short Bitcoin (explained) And How It Causes Price Spikes", which explains in detail how to borrow coins to short:

First, borrow a certain amount of Bitcoin from the exchange broker; second, sell it quickly; then, when the price is low, buy back the same amount of Bitcoin from the market; finally, return the Bitcoin to the broker.

This move is not without risk: if the price of Bitcoin rises, short sellers will lose money; otherwise, they will make a profit.

This kind of operation is very common in the traditional financial market. It is still applicable to the digital currency market.

"In the cryptocurrency world, the operations of pumping and dumping the market are too basic. By comparing with the rules and cases of the traditional market, it is easy to tell where to 'cut the leeks'." Investment banker Li Hua told a blockchain reporter.

This operation sounds simple, but it requires extremely rich experience to "find the right time."

Financial giants who have been through many battles and have huge amounts of money know this very well. They started shorting Bitcoin very early.

In 2017, the Chicago Board Options Exchange (CBOE) launched Bitcoin futures trading with the trading code "XBT". It thus became the first exchange in the world to launch Bitcoin futures contracts. Through the Bitcoin futures contracts it offers, investors can short Bitcoin.

But 2017 was a very bad year for short sellers - the price of Bitcoin skyrocketed and they lost a lot of money.

One estimate is that of a $1 million short position created in September 2017, less than $380,000 remained by December.

However, then, a landmark turning point occurred.

On December 18, 2017, the Chicago Mercantile Exchange (CME), a futures trading giant, launched a Bitcoin futures contract trading product. Due to the favorable impact, the price of Bitcoin soared to an all-time high of $20,888.

When the price of Bitcoin approached its highest point, Mark Dow, a former economist of the International Monetary Fund, opened a short position.

In his opinion, blockchain technology has limitations and the public does not know enough about it. However, speculators flocked in and pushed up the price of Bitcoin. After Thanksgiving in 2017, the popularity of cryptocurrency speculation was unprecedented. "I feel like this is a bubble."

So he took action.

He closed his position on December 18, one year later. At that time, the price of Bitcoin had fallen to $3,495.37, down about 84% from its peak.

This battle made Mark Dao earn a fortune.

Mark Dow's closing operation diagram from Bloomberg

In an interview with Bloomberg, Mark Dow said that he closed his position because he "didn't want to play anymore", but he also didn't want to see Bitcoin go to zero.

Nine days after closing his position, he tweeted again: “If Bitcoin doesn’t rise back to $5,000-6,000 soon, it will be bad news for everyone. If it falls below the yellow line, even firm holders will be panicked.”

On the day he made his statement, the yellow line was set at $3190.15.

In December 2018, Bitcoin reached its lowest price of the year - $3,155.

Mark Dow tweeted on December 27, 2018

Bitcoin chart on December 27, 2018

Mark bid farewell to Bitcoin, leaving behind a disturbing prediction: "If Bitcoin falls below $2,000, it will completely lose its value."

02 Shorting Ethereum

If Bitcoin is regarded as the boss of the digital currency world, Ethereum has long been regarded as the "second" in the digital currency world.

Driven by the ICO craze, the price of Ethereum reached an all-time high of $1,424 in early 2018, and its market value once reached as high as $135.8 billion.

But there are many people who are bearish on Ethereum.

“Ethereum has an incredible pool of development talent, but in the short term, there is still a disconnect between Ethereum’s price and its underlying technology.” American entrepreneur Timothy Young once commented. His company, Hidden Hand Capital, decided to short Ethereum.

Another digital currency hedge fund, Tetras Capital, also agrees with the above view.

They believe that Ethereum is far more speculative than Bitcoin - and as it turns out, after ICOs were banned by regulators in many countries, Ethereum's seemingly endless source of funds began to dry up.

They also believe that Ethereum can only process 20-30 transactions per second, which is not as fast as expected. In comparison, Visa can process tens of thousands of transactions per second, and Alipay can process 256,000 transactions per second.

In fact, Ethereum has also promoted two technical updates, Casper and Plasma. In Ethereum's update roadmap, Casper can prevent nodes from doing evil, while Plasma can improve Ethereum's transaction performance.

Reddit user OrnithologicalHuck said that these two technologies may be able to revive Ethereum, but it will take one to two years for the technology to be fully implemented. Yang also believes that it is difficult for ordinary people to understand the significance of this update, and there are not many players with real technical backgrounds.

Under this circumstance, the number of people shorting Ethereum was once far greater than those shorting Bitcoin.

As early as May 2018, Tetras Capital began shorting Ethereum when the price of Ethereum was hovering between $572 and $659. They chose to borrow Ethereum for trading and then buy it back when its price was low.

Since then, the price of Ethereum has continued to fall. Although it has rebounded in the short term, the current price of Ethereum is less than $150, which is more than 70% lower than when Tetras Capital first started shorting.

Some netizens joked that in January 2018, 1 Ethereum could be exchanged for a MacBook, but by September, it could only be exchanged for a pair of AirPods.

Against the backdrop of falling currency prices, even trading platforms have begun to promote the function of shorting Ethereum as a selling point.

dYdX, a digital currency derivatives trading platform established in the second half of 2018, provides trading services for ETH and Ethereum ERC20 Token. However, in many reports, the selling point of dYdX is the short-selling function.

"Here, you can short your favorite shitcoin." dYdX founder Giuliano joked in an interview with TechCrunch.

However, in a digital currency community dominated by coin bulls, admitting that you are shorting a digital currency still requires tremendous courage.

In 2017, a Reddit user posted a thread looking for an exchange that supports high-leverage shorting of Ethereum. In the comment section, someone mocked him: "Go ahead, and don't forget to tell us about your days in the homeless shelter in a few months."

03 Is there still a future?

In fact, many business giants have expressed their distrust of the digital currency market.

Warren Buffett once said: "Bitcoin is a bubble. It has no intrinsic value support."

Jack Ma also said: "Blockchain is not a bubble, but Bitcoin is. Bitcoin is just a small application of blockchain."

But despite the long road ahead, some people still have optimistic expectations for digital currencies.

Alex Sunenberg, founding partner of Tetras Capital, believes that the new bull market in the digital currency market will definitely be led by Bitcoin.

"After comprehensively considering many key factors such as security, political and architectural centralization, money supply, regulation and liquidity, I am more optimistic about Bitcoin, which is the digital currency that can achieve value storage," he said.

Tim Draper, the godfather of Silicon Valley venture capital, is also optimistic about Bitcoin. He declared in April 2018 that the price of Bitcoin would reach $250,000 by 2022. Then, the bear market hit. But in the face of outside ridicule, he still insisted on his own opinion.

Despite the negative comments on Ethereum, Tetras Capital has not completely given up on Ethereum. They believe that under the multiple pressures of regulation, competition and network, Ethereum will gradually mature.

Even the most ardent opponents of Bitcoin have gradually undergone some subtle changes in their attitudes.

Although Bill Gates has publicly stated many times that he is not optimistic about Bitcoin, in December last year, he said in a Youtube video that digital currency can reduce financial transaction costs by 90%, promote financial product innovation, and thus help the poor get better financial services and solve poverty.

Jamie Dimon, CEO of JPMorgan Chase, has publicly criticized Bitcoin as a "fraud." Recently, JPMorgan Chase has issued a digital currency, JPM Coin, which will be initially used in cross-border payments, securities trading, and large corporate accounting consolidation.

Ordinary investors are becoming increasingly sober about digital currencies.

Mao Pu, who works at a well-known digital currency exchange, believes that the current user base of blockchain is too small to show its value in the short term. But in the long run, if assets can be put on the chain and then linked together through cross-chain technology, their value will be immeasurable.

How long will this “long term” be?

"It depends on the development of technology," Maupu said. "I think it will take ten years."

The blockchain cold wave is inevitable. A blockchain publication once wrote in its report “95% of blockchain practitioners will leave, 80% of mining farms will close down, and the industry is facing a severe cold wave” that “the problem is not blockchain, but ourselves. In the blockchain craze, people were carried away, and in fact, the business models of many projects are not tenable.”

Perhaps, in ten years, blockchain technology will develop to another stage.

By then, it will attract more longs rather than shorts.

The bubble expanded quickly and burst quickly. One year later, there is a world of difference.

The introduction of regulations has caused speculators to leave and investors to wake up. The rapid cooling of the market has calmed down the entire industry.

Next, an era in which good money drives out bad money may truly arrive.

At that time, short sellers would have fewer opportunities to take advantage.