I'm new to finance and crypto and this question is more of a thought experiment so I would like to hear both theoretical as well as practical considerations. Suppose I would like to short a particular cryptocurrency token and assume for this experiment that I know its price will drop in the near term, say 1 week. My goal is to maximize profits, given that I am the only one who knows this information.
I understand that the short would consist of placing some USD as collateral on some platform, borrow this token and sell it in the market. This action has no effect on the price of the token since there was one buy and one sell. The borrowing interest rate for the token would go up.
Given sufficient USD collateral, can one rinse and repeat this process arbitrarily many times and close all the shorts when the price drops? It seems like the only things that limit my potential profits are
- Amount of USD collateral I have
- The interest I pay (this can be neglected, assuming the time frame of this experiment is sufficiently short)
- My ability to continue borrowing the token in order to short it.
Is my understanding correct so far? If yes, is it reasonable to assume that there will always be lenders who will continue to provide the token to borrow, given that the interest rate on borrowing the token probably is very high or would something eventually make the "borrowing liquidity" dry out?