Analysis of the Pros and Cons of Shorting Strategies and Personal Experience Sharing

The Risk and Reward Ratio of Shorting

From a theoretical perspective, the maximum profit from shorting is 100%, while the potential loss can be unlimited. In contrast, the maximum loss from going long is 100%, but the potential profit is unlimited. This asymmetric risk-return structure means that shorting does not have a clear advantage in the long term.

Although some believe that many projects in the cryptocurrency market are experiencing a downward trend, I still rarely choose shorting strategies (except for hedging). The deeper reason is that continuous shorting can distort a person's mindset, leading to negative feelings towards the entire industry. Once this negative sentiment accumulates to a certain extent, investors may lose confidence in the market and even attempt to short core assets like Bitcoin, which could have disastrous consequences.

It is worth noting that:

1. The long-term inflation trend of fiat currency
2. The long-term upward trend of Bitcoin

Insights from the Luna Incident

In the 2022 Luna crash, there were indeed shorting investors who made considerable profits. Essentially, this was a transfer of wealth from Luna's long investors to shorters and centralized exchanges. As a project that was once ranked in the top ten by market capitalization, such a scale of wealth transfer undoubtedly allowed shorters to profit handsomely.

However, we cannot focus only on short-term gains while ignoring long-term risks. During the rise of Luna from $0.3 to $120, a large number of shorting investors suffered heavy losses. Therefore, from an overall perspective, the risks of shorting strategies remain high.

I personally opened a short position at that time, but what I chose to short was UST (the stablecoin of Luna), rather than Luna itself. This decision was relatively safe, as UST, being a stablecoin, theoretically has limited downside, while the potential gains can be quite significant. However, such shorting opportunities are extremely rare and may only occur once every few years.

Beware of Extreme Market Conditions

In the market, extreme cases like $TRB occasionally occur, skyrocketing dozens of times in a short period (for example, rising from $10 to $550). Such market conditions can instantly wipe out all funds of shorting traders, even those who have employed the most conservative margin strategies are unlikely to escape.

Conclusion

1. Avoid habitual shorting (except for hedging)
2. Some potential gains may not be worth the risk.
3. Choosing to wait and see during market downturns may be a wiser strategy.