How And When To Take Profits From The Crypto Market (My Strategy)
Let’s do some real talk about selling your crypto.
This is something I’ve been putting some real thought into lately.
With all the buzz and enthusiasm about crypto, it is easy to always think it goes up and up. But, we all know that isn’t true.
Or you could take the utopian view. That BTC is superior to all else and you should have “diamond hands” and never sell – ever.
But, here’s the thing…
We’re still really early in this new cryptocurrency world. And yes, long term, I think it goes way higher than where we are right now. But, does that mean you never sell any?
If you don’t take profits, then what’s the point? Just holding it does nothing but make big numbers on your computer screen. For you to actually have any real-world impact on your REAL, physical life, you’ve got to sell some of your crypto back into fiatFiat, or fiat currency, is a currency that exists and has value merely because it's home government says so. A fiat curr... Click for full definition (i.e. dollars) and then use that to buy things.
What Goes Up Fast, Crashes
Bitcoin tends to go in 4-year cycles that revolve around the halvingIn Bitcoin, a halving is an event where the rewards paid to miners is cut in half. This is programmed right into the cod... Click for full definition.
Now, keep in mind, we only have about 13 years of history with which to establish this pattern. So, will it always hold true? We have no idea.
But, so far, those cycles have been rather violent. Each bull market ended with a huge, parabolic increase in price and lots of enthusiasm. People thought it would just keep going up forever. But…
It crashed. Every single time. To the tune of 80-85%.
And the altcoins usually crash harder. After the 2017 bull run, I personally rode Ethereum from a high of close to $1400…. all the way down to $80. The good thing is, I took some capital out at the top and bought it all back at around $80. But, had I known in advance that would happen, I would have sold a lot more.
We can never forget that crypto is still a violent asset class. It WILL go down. Way more than the 10% drops we sometimes see in the short-term. If it is anything like last time, we could see a 60%-80% drop in the bear market.
The Goals Of Taking Profits
To those maximalists that act like it is some kind of crime to ever sell crypto, you can feel free to ride that thing down 80%. But, I don’t feel like it. 🙂
Not only that, I think it is seriously stupid to do it.
I am about as bullish long-term on cryptocurrency as you can get, but I’m also a realist. And I have other goals in my life than to just “stack my bags” with digital assets.
So, I think it is smart to devise a personal strategy for taking profits from crypto.
That doesn’t mean you necessarily have to take those new dollars and go spend them elsewhere. You certainly could. But, even if you just park capital into stablecoins and ride out the correction, you could substantially increase your crypto holdings for the next bull run cycle.
So for me, these are the goals of selling crypto:
- To (at least) take original investment capital back out. You can then deploy that capital into other things, but you still maintain all of those profits in crypto. It is then impossible for you to lose money.
- To diversify into other assets. Real estate, for instance.
- To park capital into stablecoinA stablecoin is a particular kind of cryptocurrency which is programmed to have it's value follow and be tied to a parti... Click for full definition, giving you the capital needed to “buy the dip” after the bear market and increase your holdings for next time.
Let’s look at each of these things….
#1 – Removing Initial Investment
Hopefully, you are keeping track of the amount of dollars you put into your various cryptocurrency investments. Even if you dollar cost average and put in a little at a time, you want to keep track of the total amount of dollars you put in.
When the time feels right, you can then withdraw that original capital.
Here’s an example…
Let’s say you invested $1,000 into crypto. Perhaps a bit of Bitcoin and Ethereum. And let’s say that now your portfolio is worth $3,000.
You made $2,000. Congratulations! 🙂
Now, you can pull that original $1,000 back out by selling a third of your holdings. You can re-invest that $1,000 into something else if you want, but you still have that $2,000 worth of crypto. It is almost like “house money” now. Even if the whole market crashed to zero (which is impossible, really), it is now impossible for you to lose your original dollar investment.
#2 – Diversify Into Other Assets
Depending on how long you’ve been in crypto, there’s a decent chance you’ve really grown your purchasing power.
Why not use that newly found purchasing power to buy other stuff?
Now, personally, I have no interest in other financial instruments (like bonds, etc.). All those paper assets are of no interest to me.
I prefer real things. Like real estate. Personally, this is my main goal.
But, you can also look into other things. Even small things that might improve your life. Could be home improvements, paying off a debt, buying a new computer, or whatever it might be for you.
#3 – Park Into Stablecoin And “Buy The Dip”
The idea here is to sell high and buy low.
Whenever you get a big increase in a coinSometimes referred to as a token, or a coin. The two terms are used pretty interchangeably. Essentially, it is a digital... Click for full definition, sell off a little. Then, when it dips, you buy the dip. You can do this on a smaller scale, but you can also do this for the entire market cycle.
In the 2017 bull run, Bitcoin got up to around $20,000. It then proceeded to drop down to around $3,000 during the bear market. Let’s say you owned 1 full Bitcoin during this ride. You didn’t want to sell it all, but you sold HALF of it.
This means you took $10,000 off the table. If you then bought the dip, you would have acquired over 3BTC, giving you roughly 3.5 BTC to ride the next run. As I write this post, BTC is now sitting at around $53K, so that 3.5 BTC would be worth over $185,000.
See that?
I wasn’t smart enough about these crypto cycles last time to understand the opportunity. If I knew, I would have sold a LOT of crypto in 2017. 🙂 I’d be a heck of a lot better off right now than I am.
Hindsight. What a kick in the nads that is when you’re into crypto. 😉
My Personal Goals For This Bull Market (And The Next)
I am not going to ride this market all the way down again without making a major move. The amount of profit I have made in crypto is high enough that it would simply be stupid if I did that.
My main goal right now is to purchase “Bitcoin Manor“. 😉
Yeah, I intend to buy another house. Larger than our current one, but that’s not the main point. We want more property around the home. A pool. Room for a garden to be more self-reliant. And, a place to park my RV right next to the house.
These are things that would increase my family’s quality of life, of course. But, it is also an investment. Real estate has never been a long-term poor place to put capital.
Our current home will be turned into a rental property and I expect I could clear $600-$700 per month in cash flow from our home. I will also save myself $230/month that I’m currently paying to park my RV in a storage facility.
Now, given the inflationInflation is the rate at which the value (or buying power) of a currency drops over time. The result is that the prices ... Click for full definition happening (and I expect it to get worse), I am planning to get a mortgage on this next house. This is a strategic move for me because I actually hold enough in crypto to buy the thing outright. But, instead, I’m going to make a down payment of 20%-30% and finance the rest at low fixed rate.
In an inflationary environment, debt becomes an asset. If I’m locked in a 3%(ish) mortgage, but inflation is sitting around 10% (in asset prices), then I’m making money by holding that debt. I also think that the next crypto bull run will see me paying off that home in full.
My goal is to also use crypto to make a good dent in the monthly payment of the home.
By also taking out stablecoin profits and parking it on Celsius, that monthly interest I’m earning off that capital could all but cover the monthly payment in the new home.
For more: How To Reliably Earn Interest On Your Crypto Holdings (And Blow Your Bank Away)
Certainly, when I include rent from the current house and the savings from RV parking, then this all makes sense to me.
Then, I will use that stablecoin to “buy the dip” for the next bull run. But, at least while I’m holding it, I will earn interest on Celsius. Right now, they’re paying 10.5% on USDC holdings. That number could go down, but that’s OK. Still better than a bank. And the interest earnings will help offset inflation… as well as flow some into covering the mortgage.
Of course, I also run a business, so it isn’t as if I’m not making money anyway. 🙂
Increase my holdings and ride that market up after the next halving in 2024.
That’s the plan.
And depending on what happens THIS time, if the opportunity presents itself, I may do more than just “Bitcoin Manor”. I am considering buying land, and perhaps even commercial property. We’ll see. But, our next home is priority #1. If I do nothing but that in this bull cycle, that would still be a win. And I’ll still have plenty of crypto left.
Can We Actually Time The Top?
In an ideal world, we’d be able to “time the top” of the market. We’d know exactly when it hits the peak, sell and max out the ROIROI stands for Return on Investment. It's simple, really. If you invest money into an asset, you are doing so with the h... Click for full definition.
In the real world, that’s impossible.
Truth is, a very small percentage of people will sell just at the right time. And even those people will have just lucked out.
Truth is, we’re all now looking at it. The market is much bigger than last time. And we’re all looking for…. what?
Everybody is expecting this big, parabolic run-up and then a big crash.
Thing is…
If everybody is expecting that, it is less likely to actually do it.
I mean, we shall see. 🙂 It could indeed do exactly that. It just seems to me that if we’re all looking at the same charts and expecting the same things, it isn’t as likely. The moment that thing starts to increase quickly, there’s going to be a bunch of crypto people with PTSD from 2018 who go in and “take profits”. The end result is that… maybe we don’t get that big parabolic move for quite some time. If ever.
So, we just have no idea what the hell is going to happen.
And given this, it is too easy to just sit there and hold and always think another parabolic rise in price is right around the corner. Until… it isn’t.
Trust me, when the bull run top is in, nobody’s going to know it. Even if you sell, others will chastise you and say you need to have “diamond hands” and never sell. The dip will begin with a smaller dip. And they’ll think it will turn around and keep going up. But, then… it doesn’t.
Point is… the next bear market isn’t going to begin with big red flashy signs.
It is going to start slow.
You won’t see it coming.
When (And How) To Sell Your Crypto
Just throw out any idea that you’re going to be able to time the top of the market. It’ll never happen.
So, the only safe way to take profits out of the market is to begin to sell early.
Basically, dollar cost average back out again.
Take money out in little chunks on the way up…. then on the way back down again.
Of course, how you do this is up to you as well as just how much money you’re sitting on.
But, I have now begun the process of selling. I’m stockpiling my down payment for “Bitcoin Manor”. 🙂
Yes, there’s always that little part of me that wonders “what if”. What if I just left that capital in the market and it keeps going up. I’d make even more money!
Yeah, but…
What if it doesn’t?
What if none of us see the top? What if BTC does something different this time around?
Plus, it is never a bad day to take profits and use it to improve your life in a measurable way. That’s the point of investing.
And I’m in a position where I’ve got so much “house money” in crypto at this point, if I’m not putting it to use in something more than giving me “warm fuzzies” when I look at my portfolio, then I’m being an idiot.
Some Useful Advice For You
People who know their numbers do better than those who do not. So, here’s some things I would do if I were you.
First, track all crypto purchases so you know the price you bought it at and the amount invested. Track the amount of capital invested into each coin.
Then, for each investment, track your investment performance. Some coins won’t live up to expectations and you might have negative ROI. Others will be insanely positive and will probably make up for any losses in the other ones.
When you see a coin that has gone up some crazy amount, consider selling some and recouping the investment (or more).
But, I would do all this in a spreadsheet.
I also use CoinTracker to track my portfolio, but I also have a spreadsheet I designed to track these investments.
When a coin does really well, I’ll take profits. For instance, I bought ENJ coin at around $0.55 and rode it all the way up to around $3.70. I then sold part of my holdings and paid off the balance of my car loan with it. I still hold a decent chunk of ENJ coin, too, if it goes up much higher. But, now it is all “house money” and I have a paid-for car.
One last thing…
Don’t forget about your taxes.
When you take profits, you’re going to pay taxes. Don’t try to hide from it. Let the crypto purists fight the IRS and try to hide from the taxes, but in the meantime, I’ll be sitting inside my “Bitcoin Manor” drinking a beer by the pool and not worrying about the IRS.
To that end…
Crypto-Backed Loans As Alternative?
Some have talked about using crypto-backed loans as an alternative way to take profits and avoid the taxes.
Certainly, that’s an option. By using Bitcoin as collateral, you can get a loan from Celsius with only a 1% APR.
If you handle it smartly, this is an option. But, keep in mind….
It is still a debt. You’ve got to pay it back.
And if Bitcoin keeps going up, it can work out great. But, in a bear market, that loan could become problematic as you get margin calls on it and you have to keep from getting liquidated.
For small things, certainly the option of Bitcoin as collateral is awesome. And there’s no taxable event when you do this.
But…
It is still a debt.
And I don’t look at it the same way as taking profits.
Still, something to look into it.
Final Thoughts
Know your goals with your crypto investments.
Some will choose to just hold it for the long term. They won’t sell any, but will ride out the next bear market and just forget about it. Truthfully, nothing wrong with that strategy as long as you’re doing it intentionally.
For me, I plan to sell. Because I have other goals, too.
No way I will sell it all. I expect I may sell no more than a third of the portfolio (maybe half max). The money I leave in will be “just in case” it defies projections and just keeps going. But, the capital I take out will be deployed into other assets (like the new home) as well as give me a lot of fuel to “buy the dip”.
That’s my plan.
We’ll see if I execute it as well in real life as I am in my head. 😉
So, what’s your plan with your crypto? Do you intend to sell and take profits?
