Source: fortune.com

The CEO of J.P. Morgan this week called bitcoin a “fraud” and “worse than tulip bulbs.” If you agree, it may be tempting to bet against the digital currency. Sure, the price has taken a beating of late but it’s still up 400% from January ($3,850 as of Thursday) --offering an opportunity for bitcoin bears.


So how exactly do you short bitcoin? It’s not easy due to a lack of financial products (relative to other assets) and because some tactics are restricted to professional investors. That said, here are five approaches for bears to bet against the world’s most popular digital currency.


1) Buy it on margin and then sell it


Trading platforms like Coinbase-owned GDAX allow you to buy on margin. While margin purchases typically involve adding leverage to go long on an asset, it’s also possible to go short by selling bitcoins on margin, and then closing out the position later on. If the price of bitcoins drops during this time, you’ll profit on the trade.


There are a couple caveats. One is that GDAX requires U.S. residents to have at least $5 million if they want to trade on margin. (San Francisco-based rival Kraken doesn’t appear to have this restriction). The other is that customers can only leave margin positions open for a relatively short period of time--27 days in the case of GDAX--which means those betting on a fall in bitcoin need it to tumble in short order, or else they will have to cover the price increase.


2) Short shares of the Bitcoin Investment Trust


The SEC this year rejected an application by the Winkelvoss twins to launch a bitcoin ETF. The shares of the ETF would have traded on a major exchange, and let ordinary investors use their brokerage accounts to short them in the same way as an ordinary stock.


The SEC is reconsidering the decision but, in the meantime, the only stock-like alternative is the Bitcoin Investment Trust. As its name suggests, this is a trust that holds bitcoin and lets people trade its shares under the ticker GBTC.


Once again, there are catches. One is that GBTC is not eligible to trade on major exchanges, so instead it’s listed on OTC Markets (aka the “pink sheets”) alongside other misfit toys of the equities world. Big brokerages like TD Ameritrade do let investors buy OTC-listed stocks--but not short them, which makes it harder to bet against GBTC. Finally, the price of Bitcoin Trust shares have become untethered to the price of bitcoin (it’s basically broken as an investment vehicle) so a short bet is not exactly a bet on bitcoin itself.


3) Buy derivatives on LedgerX (when they arrive)


Experienced investors may wish to wade into the world of options and other derivatives as a way to be bearish on bitcoin. Specifically, they could buy a “put option” to sell bitcoin at its current high-flying price. If the price of bitcoin starts dropping, the option will increase in value and its owner can pocket a profit.


These derivative contracts are not available yet, but they should be soon. In July, the Commodity Futures Trading Commission approved a bid by a firm called LedgerX to open a clearinghouse for crypto-currency puts, calls, swaps and all sorts of other exotic contracts. LedgerX is expected to be open for business in the near future.


4) Ask Goldman Sachs to write you a contract


This approach is admittedly not for Joe Blow investors. It came up when I asked a few wealthy VCs at a recent dinner how they would short bitcoin given the current absence of derivatives and other common trading strategies.


Their answer was that investment banks like Goldman will write you a short position on anything you like. (Remember that scene in The Big Short when the protagonists ask banks to help them short the U.S. housing market?). So someone who believes bitcoin is a bubble could create a bespoke contract to bet on just that outcome.


5) Pick stocks that track bitcoin prices--and short them


Nikhil Kalghatgi, a venture capitalist and early digital currency investor, believes the cryptocurrency market is hindered right now by a shortage of ways for big investors to deploy hedging strategies. In response, he suggests one way to bet against bitcoin is to create a basket of stocks that move with the price of bitcoin and short them accordingly. Alas, Kalghatgi says he is not confident enough to pick what those stocks would be.


He’s not the only one to propose this idea. The Financial Times’ Alphaville blog recently singled out shares of the chip maker Nvidia, whose products are hugely popular with cryptocurrency miners, as a potential proxy for those looking to short bitcoin. But Nvidia makes products for all sorts of other industries, so using it as a bellwether for bitcoin would be a crude metric.


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The bottom line is that, for now at least, there is no simple way for ordinary investors to short bitcoin. Determined bears can and will find ways to do so--but everyone else might want to hold out for a bitcoin ETF or derivatives to arrive.



This is part of Fortune"s new initiative, The Ledger, a trusted news source at the intersection of tech and finance. For more on The Ledger, click here.


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