Cryptocurrency investing is akin to strapping into a wild roller coaster. The initial thrill of rising to the top of the coaster is elating, but the subsequent drop could have you screaming for the ride to be over.
Although crypto is known for the massive gains in a short amount of time and minting new millionaires overnight, there are also tales of massive wealth lost and getting “rekt” due to huge drops in the market.
So should you just sell your crypto? Or hang on for the ride of a lifetime?
In this guide we’ll break down the details of crafting a successful crypto selling strategy, including when to sell, when NOT to sell, and how to evaluate your crypto investment in light of historical, recent, and future events.
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Should I Sell My Cryptocurrency?
Honestly, it depends on a lot of factors.
If you are a crypto investor, you are likely aware that it does not behave like a typical investment. And while buy-and-hold is the mantra for long-term investors in the stock market, cryptocurrency is an entirely different asset class with a new set of rules around buying and selling. Here’s how to determine whether to sell or whether to HODL.
When You Should Sell Your Crypto
Selling your crypto may feel like betraying the movement, but there is a time and a place to let go of your crypto investments. Here are a few good reasons to sell your cryptocurrency:
The Value Has Skyrocketed
If you had the foresight to buy a cryptocurrency when the price was low and the value of your investment has doubled (or more), you may want to consider selling it. This may mean selling just a portion of your investment, taking some profits off the table, and hedging against the downside risk of your crypto investment.
A popular method for crypto investors that have seen a 100% return on their investment or more is to sell enough to cover their initial investment cost, and leaving only “house money” in the market. This protects your capital while still allowing you to stay invested for the long-term.
Long-Term Success Seems Unlikely
Let’s face it, not all crypto projects will make it.
And if you are invested in a cryptocurrency that has faced major setbacks, such as a hack, more promising competition, or simply a lack of interest by investors, it might be time to cut ties and sell.
There are a few telltale signs to look for that a crypto project may be on the decline:
- Lack of Development. Crypto projects thrive on developing new solutions and creating value for token holders. If a project has a lack of meaningful updates over the past six to 12 months, it may be time to invest elsewhere.
- Lack of Transparency. If the management team is sparse on details about upcoming initiatives or the project seems to have an ambiguous roadmap, this may be a sign that the project is crumbling.
- Lack of Community. Crypto project success is built on a team delivering value and a passionate community helping spread the word. If the community is dwindling or, worse, there is no engagement on the project Discord or social media accounts, it might be time to abandon ship.
Crypto Whales Are Selling
If a cryptocurrency has a number of large token holders, it’s important to watch the movement of their holdings. Because the blockchain is a public ledger, you can see the wallets that hold the most tokens for a given project.
If these crypto whales start selling off their holdings in the project, this could signal that they no longer believe in it and are reducing their exposure in anticipation of a price drop. This is not a certain outcome, but it is always a good idea to understand what the biggest investors are doing with their cryptocurrency.
There are Other Investments You Prefer
Maybe you found a great fixer-upper house in your neighborhood selling at a discount, or you would rather just buy index funds and avoid the crypto winter. If you find another investment that you prefer to put your money towards, it may be time to cut ties with your crypto holdings.
You may also just want to reallocate your cryptocurrency holdings to other projects. Maybe your Bitcoin investment has grown but you’d rather invest more in growing projects like Ethereum or Solana. You may want to sell off some of your Bitcoin holdings and put those proceeds toward other cryptocurrencies.
When You Should NOT Sell Your Crypto
It’s not always the best move to sell off your crypto holdings, especially if you believe in the long-term viability of the market. Although selling is always a personal choice, here are a few reasons you should not sell your crypto:
News headlines can be scary but they are not a good reason to sell your crypto holdings. Panic in the crypto market may signal that some investors are de-risking their portfolio, or simply they never believed in the investment in the first place.
If you’re panicking because others are selling but you have a clear conviction in your investment strategy, now is not the time to sell. If you are invested in cryptocurrencies you believe will not only survive the bear market, but grow exponentially into the next bull run, you may need to turn off the news and simply ignore the noise for a while.
The Future Is Unclear
Trying to time the market, even the crypto market, can leave you empty-handed. Bitcoin buyers who purchased the top of the 2018 crypto market only to sell when prices had dropped 80% lost out when Bitcoin eclipsed its previous all-time-high price just two years later.
Although we’ve outlined a few reasons to sell your crypto, simply selling because you think you know what the future holds is not a great strategy. Again, if you believe in the crypto you are holding for the long-term, selling now may end up costing you future gains.
If You Don’t Need the Money
Cryptocurrency is a speculative investment with a very real possibility of going to $0. This makes it the perfect candidate for investors to invest a smaller amount of money for the potential 10x gains, knowing that it also might become worthless.
If you have invested in crypto and the sum is an amount you can forget about, it may be better to ignore the investment during crypto winter and check on it again during the next bull run.
Things to Consider Before Selling Your Cryptocurrency
Offloading your crypto is as easy as hitting the “sell” button in your Coinbase account. But before you sell your crypto, here are a few things you’ll want to consider.
Cryptocurrency is considered property for tax purposes, and there are tax implications to selling your crypto assets. Capital gains taxes are imposed on any long- or short-term gains from crypto investments, which may come with a large tax bill.
If you have held your crypto for less than one year, you may be hit with a short-term capital gains tax, which is equal to your federal income tax rate. This can be as high as 37% (as of 2022) depending on your income level, and is a massive hit to your crypto profits.
If you have held your crypto for one year or longer, profits from a sale are treated as long-term capital gains, which has a much lower tax rate (20% or less, again depending on your income). So if you are near the one-year mark since buying your crypto, holding onto it a little bit longer may save you quite a bit in taxes.
How Much You Should Sell
You may not want to liquidate your entire crypto portfolio all in one go, depending on your investing goals. If you have seen substantial profits made on a given cryptocurrency, you might consider taking some profit and only selling the growth from the investment.
For example, if your Bitcoin investment has tripled, you might sell off 66% of your holdings, keeping the amount of your original investment in the market and taking profit on the increase. Or you might do the reverse, cashing out your initial investment to ensure at least breaking even while leaving the gains in the market.
Another approach is creating a crypto portfolio of several coins, and rebalancing that portfolio over time. If your Bitcoin holdings drop, but Ethereum has increased, you may rebalance this portfolio by selling off some of your Ethereum and buying more Bitcoin. This rebalancing method can help you take profits on your winners and buy more of your underperforming coins while the price is lower.
Maybe you should sell your crypto. Maybe you should HODL instead.
Before you sell off your cryptocurrency, it’s important to think objectively about why you are invested in the first place. If you have a long-term approach to crypto investing and have a strong belief in the projects you are invested in, it may be better to avoid selling and simply forget about your crypto investments while the bear market rages on.
One the other hand, if you’re ready to take some profit off the table and de-risk your portfolio a bit, selling can be a great option. It may also be a good idea if you believe the cryptocurrency you are invested in is not going to recover or if the project is showing signs of decline.
No matter what you choose, having a proper investing strategy in place is important before selling off any investment. There is no one-size-fits-all advice for cryptocurrency investing, so putting together your own investment philosophy and sticking to it is the best way to become a successful investor.