Even for experienced traders, short selling is a notoriously difficult segment of the market. No one understands that better than David Capablanca, an architect turned verified 7-figure short sell trader.
David didn’t achieve that kind of success without a lot of focused research and practice. Before breaking into short selling on a large scale, he spent years researching the market and cultivating winning strategies. Then, he started sharing his knowledge with other aspiring short sellers via The Friendly Bear Podcast, a daily deep dive into different trades, strategies, lessons and more, and the Conscious Trading Academy, where traders can learn the skills required for short selling from David himself.
Over the course of his years in the business, David has developed a powerful intuition around the market. So if you’re a short seller or want to be, you might be wondering -- is the growing world of cryptocurrency worth exploring for short sellers, or is it better left alone?
The answer, David explains, is more nuanced than that. Still, he doesn’t mince words: “Cryptocurrency is a mess right now for shorting because there’s a lot of manipulation, and there are no rules. Short selling crypto doesn’t really work, in my opinion.”
Anyone who follows the market knows that crypto is highly erratic. Generally, that means it isn’t great for short selling. But if you keep a close eye on it, you might be able to spot the occasional shorting opportunity.
David points to a 2021 example involving Saturday Night Live, Elon Musk and Dogecoin. In the months leading up to Musk’s appearance on the show, Dogecoin’s value was rising sharply -- partially because Musk himself was a vocal supporter. That all changed when he hosted SNL and joked about the currency on the show -- or, more accurately, his mother did.
Right after Musk’s monologue, his mother, Maye Musk, appeared. “I’m excited for my Mother’s Day gift,” she said. “I just hope it’s not Dogecoin!” After the joke, people holding Dogecoin started selling it almost immediately.
“It became so pumped that it was a good short,” David says. That interesting occurrence is something he calls a “sell the news” event. Essentially, many traders follow a simple truism: “Buy the rumor, sell the news.”
Musk was tweeting about Dogecoin before his appearance on the show, so traders saw it as a good buy. But when he was willing to joke about it on national TV, they viewed it as a sign that they needed to sell. The sudden burst in sales made Dogecoin’s value drop precipitously, creating the ideal situation for a short.
David Capablanca emphasizes that the Dogecoin event was an exception rather than a rule and that the regulations surrounding stocks generally make them easier to short. He adds that the lack of rules and regulations around crypto makes shorting very difficult as opposed to stocks.
Thanks to existing regulations, spotting a stock to short is a logical process. “If a company needs cash, they filed in their SEC filing, they showed their books, and it was audited by an accounting firm, I know they need cash -- and there’s only a certain amount of fraud that they can do,” he says.
“They convince you with their pitch, and people decide to take the risk to invest in that pitch that sounds so good, but it’s not backed up by anything,” he says. “So how would you short that?”
That difficulty isn’t one that changes with skill level. Instead, David says, it has to do with the nature of short selling itself. “Crypto is just like the wild, wild West; anything goes. For me, as someone that likes the rules, if I go into that environment, I’m gonna get demolished,” he says.
As someone who has quickly proven to be a short-selling veteran, David is choosing to stay away from shorting crypto. This means that it’s probably best for everyone else to do the same.
Of course, when it comes to both the stock market and cryptocurrency, things are always evolving. Does David see a future where crypto might be a viable opportunity for short sellers? Maybe. “I don’t see crypto becoming a regular fixture in short selling any time soon,” he says. “Until there’s regulation with it, and ultimately there will be some regulation with it, I don’t see it happening anytime soon.”
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