How to Short Bitcoin
If you want to engage in the extremely risky behavior of shorting bitcoin (BTC) and benefit from the collapse of the bitcoin bubble (which is slowly happening) you can do so at a new website created by a 17 year old from Signapore: BitCoinica.
You can watch a short video/audio interview of the founder of Bitcoinica. He appears to be very smart.
Bitcoinica can be funded by depositing money (or BTC) at MtGox.com and then transfering it using a MtGox code. Once you have money you can either take "long" or "short" positions. There is currently a margin/fee of around 2.6%. The website tries to match people holding long and short positions, and also holds some of the positions itself (a risky undertaking).
If you get involved in this, you can get a free $1 for starting. I'd recommend learning about the system by using the minimum tradeable amount of 0.02 BTC (currently worth 10-12 cents). Be careful as some of the trade methods will execute without confirmation!
The two major dangers involved in this site are 1) trading options in general is very risky and 2) if can you trust bitcoinica. Bitcoin is extremely volatile and is even more dangerous to trade than regular options. Shorting is dangerous because prices of things tend to generally go up (due to inflation or economic growth), so you are betting against that. It is hard to know whether to trust bitcoinica as the website is very new and lacks a track record. Bitcoin has suffered from scams and hacks. I'm especially worried about the website getting hacked. Anytime you have thousands (or possibly tens or hundreds of thousands) of dollars involved a website will attract hackers.
Another option to short bitcoin is BitOption. The website is currently being redone. I expect it might be ready for use in the next month. It will let you trade options (calls and puts), which bitcoinica does not support.
Gold Sidenote: I tentatively recommend shorting gold. I'm very bullish on most commodity prices (as we are running out of things) except for gold which I think is overpriced and where demand is fueled by speculation (jewelry and industrial demand are flat). You are also betting against right-wingers - their loss is your gain!
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For the record, I cashed out
For the record, I cashed out on my (small number) shorts when bitcoin was around $2.20. At that time I figured it was still heading down to $1, but I managed to sell at pretty much the perfect time (the bottom was $2).
Currently bitcoin is surging up and at $7. I think it is a great opportunity to short it.
Sept 23 - Gold falls $100
I wish my options account was setup. I'm waiting on a funds transfer from my bank account. Today gold just fell $100.
On my virtual trading account (aka play money) my gold put (actually the GLD ETF that holds gold) has doubled in value!