The concept of long and short positions
The long and short positions represent opposite strategies that investors and traders use to speculate on the price movements of assets under consideration.
The idea of long and short positions is still applicable to traditional financial markets in the realm of cryptocurrencies. In order to profit from a cryptocurrency’s price increase, a long position entails purchasing it with the expectation that its value will rise over time.
In contrast, going short in the cryptocurrency market means selling a cryptocurrency one doesn’t own in anticipation of a price reduction, then buying it back at a cheaper cost to close out the position and profit from price drops.
Crypto traders and investors employ these strategies to navigate the highly volatile and speculative nature of digital assets and seize opportunities in both bullish and bearish market conditions.
The fundamental distinctions between long and short positions
In cryptocurrency trading, a long position is started by purchasing an asset in the hope that its price will rise, whereas a short position is started by disposing of an asset (typically one that was borrowed) in the hope that its price will fall.
While closing a short position means purchasing the asset at a lower price to achieve gains, exiting a long position involves selling the asset at a higher price to lock in profits. Entry and exit points are essential for these tactics to be implemented successfully.
Understanding the differences between long and short positions in the world of cryptocurrency trading is essential for successfully navigating the volatile digital asset markets. Here’s a summary of the differences between the two:
The process of going long in cryptocurrency
Going long in cryptocurrency involves a strategic process to profit from anticipated price increases.
Here’s a step-by-step process:
Research and analysis
Before making any investment, a person must carefully investigate and analyze their chosen cryptocurrency. Consider elements like its technology, market trends, historical data and likelihood of acceptance.
Select a crypto exchange
The traders must then pick a trustworthy cryptocurrency exchange or trading platform that provides the required cryptocurrency. They should set up an account, carry out the required checks and use two-factor authentication to protect the account.
The next step after creating an account is to deposit money into it. Depending on the platform, users can often deposit fiat money or another cryptocurrency to be used to buy the desired coin.
Place a buy order
Placing a “buy” order on the platform of choice for the cryptocurrency is the next step. Users can either choose the current market price or a limit order with a specific purchase price.
Monitor and manage
After the buy order is carried out, an individual owns the cryptocurrency. They should carefully monitor market developments and choose an exit strategy, which can entail deciding on a price objective, relying on technical indicators or meeting other requirements. When it’s time to sell their long position and convert the cryptocurrency to their preferred currency, they can place a “sell” order.
Risks and potential rewards associated with long positions
Long positions in cryptocurrencies offer the potential for significant profits through price appreciation, but they are accompanied by the substantial risk of market volatility and potential losses.
Although they carry some risk, long positions in cryptocurrencies have the potential to yield significant gains. The chance to profit from price growth is the main benefit. For instance, an investor who purchased Bitcoin (BTC) at a discount and kept it during its sharp increase in value realized large gains.
Long positions can expose investors to the developing cryptocurrency ecosystem and may profit from the uptake of blockchain technology. However, the risks are equally pronounced. Cryptocurrencies are well-known for being extremely volatile and prone to sudden price changes.
If the market goes bearish and the value of investors’ holdings declines, they could lose money. Prices can also be impacted by regulatory uncertainty, security breaches and market sentiment.
As cryptocurrency markets are subject to protracted periods of instability and unfavorable trends, maintaining a long position needs patience. Investors must do in-depth research, exercise risk management and stay educated to make informed decisions when pursuing long positions in cryptocurrencies.
The process of going short in cryptocurrency
In cryptocurrency, going short includes betting on a price decrease and making money off of it.
Here’s a step-by-step process:
Research and analysis
A trader starts by thoroughly researching and analyzing the cryptocurrency they want to sell. They seek signs that an asset’s value may be declining, such as unfavorable news, overvaluation or technical indicators pointing to a bearish trend.
Select a trading platform
Traders pick a trustworthy cryptocurrency exchange or trading platform that provides margin trading or short-selling alternatives for the particular cryptocurrency they want to short.
Margin account setup
The trader opens a margin trading account on the chosen platform, goes through any necessary identification verification steps, and deposits fiat money or cryptocurrencies to use as collateral. This collateral is necessary to protect against potential losses when holding a short position.
To sell a cryptocurrency short, a person must borrow it from an exchange or other platform users. This borrowed cryptocurrency is then sold on the open market.
Monitor and set limits
The trader carefully monitors the crypto market to watch price changes. They established a target buy-back price and placed stop-loss orders to prevent further losses. They intend to buy back the borrowed cryptocurrency to close off their short position at this target price.
Close the position
When the anticipated price decline of the cryptocurrency occurs, the trader closes the position by purchasing the borrowed cryptocurrency at a lower price to return it to the lender and profit from the price decline. This action marks the completion of the short position.
Risks and potential rewards associated with short positions
By betting on price reductions, short positions in cryptocurrencies may yield rewards, but they also come with significant risks due to market volatility, endless potential for loss and unforeseen price increases.
Short positions in cryptocurrency trading have a high potential for gains but also pose substantial risks. The main benefit is the chance to profit from a cryptocurrency’s price drop. For example, if a trader accurately foresees a bearish trend and shorts a cryptocurrency like Bitcoin, they may then purchase it back at a lower price and keep the profit from the price difference.
Short investments, however, often pose several significant risks. The markets for cryptocurrencies are notorious for their high volatility, and unanticipated price increases could result in large losses for short sellers.
There is also the limitless risk aspect to consider because there is no cap on how much the price might increase. Sharp price increases can be brought on by legislative changes, unanticipated shifts in market sentiment or unexpected positive news.
Short-selling in cryptocurrencies necessitates exact timing, meticulous risk management and continuous market monitoring to successfully negotiate the inherent volatility and maximize potential gains while limiting losses.
Tax implications associated with gains and losses in long and short positions
Tax ramifications for gains and losses in long and short cryptocurrency holdings can be complicated and vary by country.
Gains from long positions are typically regarded as capital gains in many nations, and when the asset is sold, capital gains taxes may apply. Short-term gains are taxed more than long-term gains, and the tax rate frequently varies depending on the holding time.
Conversely, short positions may present particular tax difficulties. The act of borrowing and selling a cryptocurrency short may not result in an immediate tax obligation in some countries because the short position is not closed until the borrowed asset is bought back. The trader may experience capital gains or losses when closing out a short position, depending on the discrepancy between the selling and buying prices.
To understand and abide by local tax laws, cryptocurrency traders should be aware of crypto tax laws applicable in a particular jurisdiction, as the tax treatment of cryptocurrency gains and losses can differ dramatically from one location to the next. Also, proper record-keeping and reporting are crucial to maintaining tax compliance in the cryptocurrency sector.
BTC price holds 6% gains as Bitcoin battles for ‘crucial’ $28K support
Bitcoin (BTC) passing $28,000 hints at bullish sentiment, but reclaiming it for good is essential, analysis says.
In an X (formerly Twitter) post on Oct. 17, Yann Allemann and Jan Happel, co-founders of on-chain analytics firm Glassnode, described the $28,000 mark as a “critical milestone” for the BTC price.
Glassnode: “Keep an eye out” for $28,000
After snap volatility, which caused Bitcoin to hit $30,000 for the first time since August, the largest cryptocurrency has managed to preserve some of its gains.
For Allemann and Happel, the pair is now at a defining crossroads.
“The crypto market is hinged on BTC’s ability to breach and consistently maintain a value north of $28k,” part of their commentary stated.
$28,000 has formed a battleground ever since Bitcoin first crossed it in early 2021, and liquidity has traditionally surrounded it as bulls and bears fight to secure control over long-term trajectory.
Data from the trading suite DecenTrader, among others, confirms that the status quo remains despite recent BTC price moves, with $28,000 lying in a zone between major longs and shorts of varying leverage.
“While this pivotal milestone was momentarily attained on futures, the spot market price peaked at $27.98k earlier today. It’s evident just how crucial this price point is in the larger scheme,” Allemann and Happel added.
“The rapid movements and these price thresholds aren’t just numbers. They signify investor sentiment, market dynamics. Keep an eye out for the 28k level.”
Road to Bitcoin halving contested
As Cointelegraph reported, predictions over what the future will bring for Bitcoin both before and after its next block subsidy halving in April 2024 differ considerably.
In an interview last month, DecenTrader co-founder Filbfilb eyed BTC price galvanizing itself for upside during Q4, possibly reaching $46,000 by the halving.
Some well-known market participants, however, remain risk-averse. Among them, popular trader Crypto Tony and others are betting on a pre-halving return to $20,000 for a final local bottom.
“Many can scream they are long right now and caught that move, but if your not taking profit here at resistance your doing something wrong,” he told X subscribers about the recent surge.
“I personally will not be long unless we flip that $28,500 level into support.”
This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.
Ripple job posting hints at possible IPO, XRP community says
Fintech payments company Ripple released a new job posting on Oct. 16 for a shareholder communications senior manager across multiple locations in and outside the United States. The job posting prompted many crypto enthusiasts to label it as an official hint about the company’s plans to go public.
The job posting outlines that the role will require direct communication with shareholders — a concept generally associated with publicly traded companies. The chosen candidate would be responsible for developing and implementing communication and relationship management strategies for “existing and prospective investors, current shareholders, and financial analysts.”
The job description emphasizes the candidate’s need to create strategic plans specifically suited for situations like “M&A [mergers and acquisitions], investments, liquidity events, and other high-impact moments.“
The role includes creating investor-focused materials like “presentations, fact sheets, case studies, and analyses“ to inform and educate potential investors about the company’s prospects and performance — a necessary component of the initial public offering (IPO) preparation process. The responsibilities of the post also include maintaining a shareholder database and managing routine communications like quarterly updates.
Many XRP (XRP) proponents and the pro-Ripple community on X (formerly Twitter) are referring to the job posting as a hint that there may be an IPO. Some key executives from the company have also alluded to the possibility that Ripple might go public but haven’t given any indication of timing.
Anyone notice the recent job openings at #Ripple?
The only reason you need a Shareholders Communication Manager.. is for an IPO.
— Chad Steingraber (@ChadSteingraber) October 16, 2023
The crypto-focused payments company has recently been in the limelight due to the U.S. Securities and Exchange Commission’s (SEC) lawsuit alleging XRP is a security. Ripple scored a major win in the lawsuit in July when a judge ruled that XRP is not a security in terms of sale on digital asset exchanges.
Key Ripple executives have claimed that even though the SEC lawsuit has cost them many business opportunities in the U.S., most of its remittance business lies outside America.
Banks’ crypto exposure must be disclosed — BIS’ Basel Committee
The Basel Committee on Banking Supervision of the Bank for International Settlements (BIS) released a consultation paper on Oct. 17, proposing to make it compulsory for banks to disclose their crypto exposure.
The Basel Committee comprises central banks and financial authorities from 28 jurisdictions and is a forum for regulatory cooperation on banking supervisory matters. The latest consultation paper is based on the disclosure guidelines in the final prudential standard on how banks should handle their exposure to crypto assets released in December 2022.
The consultation paper aims to set a standardized “disclosure table and set of templates for banks’ crypto-asset exposures,” with a proposed implementation date of Jan. 1, 2025. The Basel Committee has opened the proposal for public comment until Jan. 31, 2024, after which the results will be published on its website.
Under the new proposed regulations, banks would be required to provide quantitative data on exposures to crypto assets and the corresponding capital and liquidity requirements. Banks would also be required to offer qualitative data on their activities linked to cryptocurrencies.
Additionally, banks would be required to offer information on the accounting classifications of their exposure to crypto assets and liabilities. In its proposal, the committee claimed that using a uniform disclosure format will encourage the application of market discipline and lessen information asymmetry between banks and market participants.
The committee also reviewed crypto assets and bank exposure in June. At the time, the committee didn’t delve deeply into the topic, mentioning only that it was focusing on permissionless blockchains and the eligibility criteria for “Group 1” stablecoins.
The BIS has been actively involved in crypto consultations and examining the regulatory aspect of decentralized technology. Recently, the BIS and a handful of European central banks published details of a concept to develop a system to track international flows of cryptocurrencies.
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