Shorting the dunning krugerands : Retail Investor Edition
May 14, 2022 7:40 AM Subscribe
Are there funds accessible to the retail investor that can effectively short tether - or other crypto scamcoins?
I’m not interested in buying or interacting with crypto itself, but if there are any funds with limited exposure (i.e. not a naked short-type thing, the most I can lose is my investment ) but whose value increase if tether - or scamcoins (especially proof-of-work / proof of consumption scamcoins) - die in a horrible fire. Bonus if they are trades on standard platforms; order of investment would be on the order of ~$1k…. initially.
I’m not interested in buying or interacting with crypto itself, but if there are any funds with limited exposure (i.e. not a naked short-type thing, the most I can lose is my investment ) but whose value increase if tether - or scamcoins (especially proof-of-work / proof of consumption scamcoins) - die in a horrible fire. Bonus if they are trades on standard platforms; order of investment would be on the order of ~$1k…. initially.
Are there funds accessible to the retail investor that can effectively short tether - or other crypto scamcoins?
No, not right now. There are no crypto short funds (at all) at the moment in the United States, although multiple funds are proposing them. The first funds will be popular coin shorts (ie, BTC) rather than the coins you appear to be looking at. If you were open to directly short coins or work with derivative products on coin value, you would risk more than your investment.
posted by saeculorum at 8:50 AM on May 14, 2022 [3 favorites]
No, not right now. There are no crypto short funds (at all) at the moment in the United States, although multiple funds are proposing them. The first funds will be popular coin shorts (ie, BTC) rather than the coins you appear to be looking at. If you were open to directly short coins or work with derivative products on coin value, you would risk more than your investment.
posted by saeculorum at 8:50 AM on May 14, 2022 [3 favorites]
whose value increase if tether - or scamcoins (especially proof-of-work / proof of consumption scamcoins) - die in a horrible fire
It's off the beaten path of what you're actually looking for, but the closest thing out there right now is BITI, which is an inverse BTC ETF. It only trades on the TSX. I think there are a few starting to crop up in Australia as well.
This one is built to mirror the inverse performance of an index that tracks the performance of rolling front-month BTC futures.
The long version of it is HBIT. The company that runs it specializes in leveraged ETFs that are long or short on various indices or commodities. There's a whole bunch of caveats and cautions with any of these because they're frequently misunderstood. The basic one is that they're designed to perform in the way they do in the very short term only; i.e., they're not intended to track the performance of their underlying index, whether inversely or not, over a period beyond one day.
But they're all bought and sold on legit stock exchanges like any plain-vanilla ETF. The most you can lose by buying shares with cash money is your initial investment.
I can't find it offhand, but I read somewhere that there are still regulatory hurdles to creating US ETFs that are tied to spot pricing for various types of crypto -- but it stands to reason that various types of short crypto ETFs will emerge in the US eventually if not imminently.
posted by mandolin conspiracy at 11:45 AM on May 14, 2022
It's off the beaten path of what you're actually looking for, but the closest thing out there right now is BITI, which is an inverse BTC ETF. It only trades on the TSX. I think there are a few starting to crop up in Australia as well.
This one is built to mirror the inverse performance of an index that tracks the performance of rolling front-month BTC futures.
The long version of it is HBIT. The company that runs it specializes in leveraged ETFs that are long or short on various indices or commodities. There's a whole bunch of caveats and cautions with any of these because they're frequently misunderstood. The basic one is that they're designed to perform in the way they do in the very short term only; i.e., they're not intended to track the performance of their underlying index, whether inversely or not, over a period beyond one day.
But they're all bought and sold on legit stock exchanges like any plain-vanilla ETF. The most you can lose by buying shares with cash money is your initial investment.
I can't find it offhand, but I read somewhere that there are still regulatory hurdles to creating US ETFs that are tied to spot pricing for various types of crypto -- but it stands to reason that various types of short crypto ETFs will emerge in the US eventually if not imminently.
posted by mandolin conspiracy at 11:45 AM on May 14, 2022
Long story short, no, you can’t really do this, and even if you could, you shouldn’t. The annoying thing about shorting is there are as many ways to lose money being right as by being wrong, and that goes double or more for anything involving crypto.
One particular way to lose money on an inverse ETF is through volatility. The idea is, on a given day, if the underlying goes up 10%, the inverse ETF goes down 10%, and vice versa. This sounds like what you want, but the devil is in the details. Let’s say Bitcoin goes up 50% one day and then down 50% the next. It will be down 25% over the two days, so the inverse ETF would be up, right? Nope, it will also be down 25%. Buying an inverse ETF leaves you short volatility which is not necessarily where you want to be if you are bearish on crypto.
Other popular ways to lose money on short bets are by being right at the wrong time and by being so right that you can’t close out your position (e.g. the thing you’re shorting is so big of a fraud that you can’t trade it anymore).
Unfortunately, if you’re bearish on crypto, your best bet is to just ignore it.
posted by goingonit at 3:08 PM on May 14, 2022 [2 favorites]
One particular way to lose money on an inverse ETF is through volatility. The idea is, on a given day, if the underlying goes up 10%, the inverse ETF goes down 10%, and vice versa. This sounds like what you want, but the devil is in the details. Let’s say Bitcoin goes up 50% one day and then down 50% the next. It will be down 25% over the two days, so the inverse ETF would be up, right? Nope, it will also be down 25%. Buying an inverse ETF leaves you short volatility which is not necessarily where you want to be if you are bearish on crypto.
Other popular ways to lose money on short bets are by being right at the wrong time and by being so right that you can’t close out your position (e.g. the thing you’re shorting is so big of a fraud that you can’t trade it anymore).
Unfortunately, if you’re bearish on crypto, your best bet is to just ignore it.
posted by goingonit at 3:08 PM on May 14, 2022 [2 favorites]
This sounds like what you want, but the devil is in the details. Let’s say Bitcoin goes up 50% one day and then down 50% the next. It will be down 25% over the two days, so the inverse ETF would be up, right? Nope, it will also be down 25%.
Just to add to this caveat: as more crypto-linked ETFs emerge, there's no doubt some of them will employ higher leverage than 1x -- e.g., various flavours of 2x or 3 inverse ETFs. From a basic risk point of view, this means taking all of the risks of an inverse ETF that goinonit describes above and multiplying them. Then, on top of that, throw in added risks lurking in the construction of the way in which the multiple performance that fund seeks to achieve is built.
So yeah -- there will be a bunch of various ways to expose yourself to being short on crypto indirectly that are going to come to market in ETF form (and on which your loss is limited to your initial investment), but despite what their marketing says, they won't do the thing most retail investors think they do.
I agree that "ignore it" is the real advice here.
posted by mandolin conspiracy at 4:04 PM on May 14, 2022
Just to add to this caveat: as more crypto-linked ETFs emerge, there's no doubt some of them will employ higher leverage than 1x -- e.g., various flavours of 2x or 3 inverse ETFs. From a basic risk point of view, this means taking all of the risks of an inverse ETF that goinonit describes above and multiplying them. Then, on top of that, throw in added risks lurking in the construction of the way in which the multiple performance that fund seeks to achieve is built.
So yeah -- there will be a bunch of various ways to expose yourself to being short on crypto indirectly that are going to come to market in ETF form (and on which your loss is limited to your initial investment), but despite what their marketing says, they won't do the thing most retail investors think they do.
I agree that "ignore it" is the real advice here.
posted by mandolin conspiracy at 4:04 PM on May 14, 2022
Best answer: I agree with folks here that "ignore it" is the best advice. This is one of those situations where, if you have to ask for advice here, you probably shouldn't be trying to do it in the first place.
I don't think that there is any safe way to short Tether specifically, despite it obviously being straight-up fraud. That's just the unfortunate nature of these things :/
As for PoW currencies, shorting miners seems like a better bet than shorting the coins themselves.
posted by wesleyac at 6:08 PM on May 15, 2022
I don't think that there is any safe way to short Tether specifically, despite it obviously being straight-up fraud. That's just the unfortunate nature of these things :/
As for PoW currencies, shorting miners seems like a better bet than shorting the coins themselves.
posted by wesleyac at 6:08 PM on May 15, 2022
This week’s Odd Lots podcast is an interview with someone who shorted USDT during the mess lass week. Really recommend listening to it if you want to go a bit deeper into what people do who short stablecoins for a living and what the state of play is right now. Doesn’t by any means change my advice to ignore the whole situation but it’s interesting on a purely intellectual level.
posted by goingonit at 5:26 AM on May 16, 2022
posted by goingonit at 5:26 AM on May 16, 2022
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