Never take profits unless you’re trading as a living, you just might fall into the trap that has doomed many in this market. Eventually, the market will get so hot and greedy, you will have to sell to avoid the inevitable bear market that follows. Until then, let your portfolio grow, otherwise you end up taking profits away from yourself, paying more taxes than you need to, and missing out on future growth.
Mark
Editor, Crypto is Easy newsletter. #1 writer, Medium. Bitcoin author, analyst, commentator.
Sometimes, you need to sell crypto.
If so, do it. Why should you risk your quality of life or neglect important, urgent expenses? You will always have opportunities to make money, it doesn’t have to come from crypto.
Just keep in mind, unless you’re trading as a living, you just might fall into the trap that has doomed many in this market—sacrificing tomorrow’s gains for today’s fear.
A little while ago, I published Truth #1, When Bitcoin Runs, Altcoins Always Follow.
This post is about truth #2:
Never take profits unless you have to.
Everybody seems to believe you have to take profits on the way up.
Nonsense.
That’s a trader’s mentality. They’re buying and selling crypto to make more of their government’s money. Of course they need to take profits, that’s the whole point.
You’re not a trader. You’re trying to grow your wealth and build financial freedom. As a result, you don’t have to take profits.
When you take profits, you have to pay transaction fees and taxes.
You also give up all of the future gains that your investment could deliver. Depending on your tax laws, you may end up losing lucrative tax breaks or putting yourself unnecessarily into a higher tax bracket.
There’s also a decent chance your crypto will go up after you sell it and never go back to the price you sold at. In other words, you may guarantee yourself that you’ll end up worse off for selling.
At the end of the day, you’re trading an asset that goes up in value forever in exchange for more of your government’s money, an asset that is designed to go down in value forever. Think carefully before you take that step.
Whose capital are you protecting?
A lot of people sold from January to May of this year. Some bought back in later, most didn’t, and now the prices of Bitcoin and many altcoins are higher than when they sold.
They weren’t wrong for selling. Data showed the market losing strength for the first four months of 2021, even as prices rose. It’s never a bad idea to realize 5-10x gains if you’re worried you’ll never get those gains back.
At the same time, this market moves in extremes. For Bitcoin, up 4x, down 50% is normal. For altcoins, up 10x, down 80% is typical. In the end, you’re still double on your money and ready for the next 4x or 10x.
Let’s say you take 50% profits after the price doubles. Zero capital at risk. “House money” as they say in the stock market.
Not only do you miss the rest of that 4x or 10x, you end up with 50% less for the next 4 or 10x after that—before factoring in taxes and fees.
Your opportunity costs compound over time. It’s hard to get 100x from selling as soon as the price doubles.
Taking profits . . . from yourself?
Look at the path this market’s taken since December 2018.
We’re in the middle of a multi-year parabolic uptrend. Why fight it? Is the risk worth the reward?
Eventually, the market will get so hot and greedy, you will have to sell to avoid the inevitable bear market that follows. The signals are clear but we haven’t seen them since December 2017. You can expect they’ll come again, the only question is when.
I cover this in my newsletter, Crypto is Easy, as part of my plan for Bitcoin’s bull market.
My Plan for Bitcoin’s Bull Market
When should we sell? I’ll tell you in my newsletter.
Until then, buy when the market’s in your favor and ride the ups and downs. Save money while you wait for the market to drop, rather than ditch your crypto when its price zooms.
You might find it’s better than selling on the way up and letting the market run away from you.
Mark Helfman publishes the Crypto is Easy newsletter. He is also the author of three books and a top bitcoin writer on Medium and Hacker Noon. Learn more about him in his bio.
Originally published in Cryptowriter.
Disclaimer: The opinions in this article belong to the author alone and should not be considered investment advice.