Time to Short Bitcoin?

at least!?

I have a confession: I am a long time bitcoin hater.

I had the chance to get in on it early when I was an avid user in a 2000s online poker forum. I did not, mostly because I thought it sounded insane. Why pay good legal tinder for fake internet money? I did try half-heartedly to mine some and gave up after a month of wasted effort, leaving me with just another “what could have been” story.

One way to look at this is that I was wrong. The market spoke, and the price of bitcoin shot up as one of the best-performing investments of all time. The value of anything is what the market will pay, and clearly the market had different ideas from me.

But markets can have bubbles, where the price diverges substantially from its true value, and somehow these bubbles take suprisingly long to pop. One rather famously destroyed the subprime mortgage market in the Great Recession. So I’m not quite prepared to say that, just because the market price for Bitcoin went up, it must automatically be worth that much.

Notably, almost none of its True Believers predictions have come true. It has not become the backbone for free decentralized internet finance: most normal people still use venmo or paypal or other services. There are other cryptocurrencies like etherium that are technically superior to bitcoin, but people don’t even really use those much either. Even when we’ve had a major state emergency, like Iran’s currency losing all of its value and them attempting to levy tolls on ships, they’re still not using Bitcoin—they’re using cash, barter in goods, or USD-backed tether-coin. This was the absolute perfect situation for Bitcoin to shine, and it still failed.

So who does use Bitcoin? As far as I can tell, it’s mostly just people hoping to get rich quick and sell it on to a greater fool. Even the doomsday preppers and online scammers don’t really use Bitcoin anymore, there are better cryptocurrencies for that. Bitcoin only has value because people believe it has value. In other words, a pure bubble.

Recently, Bitcoin has dropped severely, more than 20% over the past month:

I’m not much for technical indicators, but this kind of drop would also have it flashing red on any sort of technical/momentum indicator (EG moving average).

So what’s now? It has no fundamental value, terrible momentum, and, oh yes, there’s the chance that it could someday be broken by quantum computing.

I believe that the time has finally come to put a short bet on Bitcoin. I’ve been wrong before, and lost money on this but… dammit, to quote the words of Michael Burry: “I may have been early, but I wasn’t wrong.” I still say this this is a fucking bubble and it’s going to crash.

Of course, even if I’m right, that leaves the question of what exactly I’m supposed to do about it. There are many intriguing ways to play it, depending on what kind of risk/reward structure we’re after.

A pure, naked short offers the terrifying possibility of infinite loss. That said, it’s unlikely to go to “infinity,” and is the simplest way to bet against it. The maximum profit is only double our investment.

An inverse etf like BITI offers the ability to profit from declines without any infinite loss. However, it suffers from volatility decay if the price simploy bounces around a fixed range.

Betting on options allows for the chance of truly outsized returns, and with fixed max risk. However, it requires us to be precise in both timing and specific price movement, and will lose our entire investment if we can’t get both of those correct.

Since I am currently long the overall market using a large amount of leverage from options, I believe that the best strategy for me personally is to offset this with a small amount of OTM options buying puts on bitcoin. The best time to do this would have been a month ago, but perhaps the second best time is today. I will target a time range from 1 week to 1 month, and prices roughly 10% OTM, which is enough to pay out significantly if it crashes but not to require too much of a change.