When to Sell Crypto

Dec 20, 2021 08:41 PM ET
When to Sell Crypto

2021 has seen cryptocurrencies outperform almost every other asset class, which has raised eyebrows among many investors the world over. Institutions and even governments are scrambling to get in on this crypto wave, albeit with cautious optimism. In the same year, Bitcoin, the leading cryptocurrency by market cap, hit an all-time high of $68,000 in November. This came right after suffering a terrible bear run in the summer, even reaching lows of $29,795 in July. One thing is clear, though — cryptocurrencies are here to stay; ignore them at your own peril. 

What is cryptocurrency?

Cryptocurrency is a digital currency that is based on blockchain technology. It is a medium of exchange that supports peer-to-peer transactions. Crypto began in 2009 with the inception of Bitcoin, which was invented by an anonymous programmer, or group of programmers dubbed Satoshi Nakamoto. 

In the Bitcoin white paper, Satoshi proposed a digital currency that was devoid of any governmental or institutional control but instead ran independently through a consensus system on a public ledger. This public ledger is called a blockchain, and all transactions involving the cryptocurrency are stored on this blockchain.

Today, there exist more than 10,000 cryptocurrencies, some more popular than others. Cryptocurrencies, and blockchain technology, in particular, have come to revolutionize how we think about money. It has introduced a global economy the likes of which has never been seen before, all while running on its own decentralized financial systems.   

Factors to consider before investing in crypto

Though these cryptocurrencies promise quick profits and chances of making a fortune almost overnight, they are speculative assets. As with any other speculative asset, they carry their fair share of risk. The crypto market is extremely volatile, which means you can make quick losses just as easily as you can make huge short-term profits. 

Further, seeing as the crypto movement is only in its teenage years, the future of regulation of this industry is still uncertain. Most countries allow the free usage and trade of crypto assets, but more and more countries are seeing the need to introduce regulations to prevent illicit activity and protect investors. El Salvador accepted Bitcoin as legal tender, while China effectively banned crypto usage. The Biden administration in the US is currently looking to enforce a law that compels investors to report their crypto gains for taxation purposes.  

In addition, only a handful of vendors take payments in cryptocurrencies. The list of these vendors is gradually growing, with notable additions being the likes of Microsoft, Tesla, and Starbucks. It might be a while till crypto is accepted as a standard form of payment. 

The mechanics of selling crypto

Selling is not exclusive to crypto. Everyone who is in business aims to buy low and sell high. This has been the guiding principle since the age of the Han dynasty’s Silk Road. Most people have heard of selling stock, where you buy shares of a company when you see growth potential and sell them when the CEO gets in trouble. However, when holding said stocks, they may get to their peak, and then you’re faced with the dilemma of whether to sell them or to wait for further gains. 

The Roman scholar and philosopher Marcus Cicero once said, “More is lost by indecision than wrong decision.” This holds true for many traders, whether it be stocks they are trading, forex, or even cryptocurrencies. Therefore, a vital skill in achieving success in any financial market is knowing when to let go.    

The importance of setting targets

To know the best time to sell your crypto, you must have targets you aim to hit. These targets are driven by your investment goals. Therefore, the first question you need to ask yourself is, what do you aim to achieve out of your investment? With a goal in mind, making the decision to sell is much easier.

Another thing you need to know is just how much gain is enough? If you’re a long-term investor, you’re probably not looking for a specific number in profits. Such investors are unfazed by the everyday peaks and valleys of the coins they are invested in. Such guys are only concerned about buying the dip, then waiting years for their investment to mature. However, if you’re not one of those investors, you need to have a profit target in mind. 

Therefore, you need to consider your initial investment and how much time you’re willing to wait to see a return on this investment. For instance, if you bought 1 BTC in 2011 at $1, you could have sold it in a couple of months when it hit $30. That right there is a 3000% ROI. 

Monetarily, this doesn’t seem like much but imagine a person who bought 1,000 BTC at the same price. After the same period, they’d have made $30,000 from a $1000 investment. If such a person fails to sell and the coin crashes, they will lose everything. Similarly, if they sell too soon and its price rallies, they also lose out on much more profits.

Limiting losses

Ironically, most traders are certain on how much they’re willing to lose, but they never know how much gain is enough. Most professional traders aim for a 1% maximum loss on their investment. This is a good rule to go by, as such a loss oftentimes will not drastically affect your living standards. After all, you wouldn’t risk the clothes on your back, would you? 

Conclusion

The decision to sell your crypto is never an easy one, as you’re always afraid you’re leaving money on the table. However, the market is volatile and unforgiving, and what may be a profit today may just as quickly change into a loss tomorrow. Therefore, always do your research, set goals, and stick to them. Additionally, have a loss limit you adhere to so that you’re not left holding on to a losing trade when you could have gotten out before your losses became irrecoverable.

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