The headlines around cryptocurrency are full of false promises, grifters, and con artists who give it a bad name.
The truth is more nuanced. Crypto is an asset like any other and should be treated with respect. Smart investments can return significant profits, but volatile markets lead many investors to make hasty decisions.
In this article, we help investors understand when to take crypto profit out to keep. Don’t go anywhere.
The Importance of Timing in Crypto
Crypto trading might look similar, but it’s miles apart from the everyday, run-of-the-mill stock market. The cryptocurrency market is known – infamous, even – for its volatility. Prices fluctuate rapidly, sometimes even in a matter of minutes.
Investors must carefully consider when to enter and exit a position to maximize their potential.
Understanding FOMO, FUD, and HODL
Three of the most common (and most misunderstood) terms in cryptocurrency are Fear Of Missing Out (FOMO), Fear, Uncertainty, and Doubt (FUD), and the backronym Hold On for Dear Life (HODL), which originated from a misspelling of “hold”.
FOMO is a common tactic in modern marketing. It refers to the feeling that one must act quickly to avoid missing out on an opportunity. It’s why e-commerce businesses throw “limited time” offers in your face the moment you land at their stores and it’s as old as the high street clearance sale.
FOMO is prevalent in the crypto scene through memes, viral marketing, and social media. To avoid it, investors should remain patient and stick to their strategy, shying away from hasty, emotional decisions.
FUD, similarly, refers to the negative sentiment that can cause panic selling on markets. Rumors and bad publicity can cause mass selloffs that lead to sharp drops in crypto prices. Keeping a cool head and a long-term perspective is important to navigate FUD.
HODL, finally, is a popular mantra in the crypto community that encourages investors to hold onto their assets and weather out periods of market volatility.
While HODLing is an effective strategy for long-term investors, it’s important to recognize when it’s time to take profits – and that’s what we’ll discuss for the rest of this article.
Pros and Cons of Holding Crypto
When an investor holds crypto, they’re balancing a range of pros and cons. The advantages of holding are threefold:
- Passive income opportunities
- Long-term potential
- Low transaction costs
Frequent trading can cause high fees, so it’s best to trade only when necessary. Those trading fees might seem small, but they add up over time. Overall, many investors believe that cryptocurrencies have a high potential for long-term growth, so holding onto them even through periods of turmoil can result in substantial returns.
However, holding crypto can backfire.
The market is known for its volatility, and it’s nerve-wracking even for experienced investors to hold onto crypto during extreme price fluctuations. There’s no guarantee of a profit, meaning that holding can result in substantial losses if crypto prices decline and stay that way.
Finally, holding onto crypto might preclude investors from opportunities that offer more immediate returns.
Knowing When To Sell
Knowing when to sell crypto is the million-dollar question. The factors to think about include:
- Profit targets
- Portfolio rebalancing
- Market conditions
If your investment has reached a predetermined profit target, it may be a good time to lock in gains by selling. Likewise, if the market is showing signs of a downturn, it might be wise to sell and (potentially) buy back at a lower price.
To that end, it’s worth thinking about profit targets before investing. A stable portfolio is a diverse portfolio, and periodically reviewing investments helps maintain a balanced level of risk.
Reinvesting Crypto Profits
When an investor reinvests in crypto, they grow their portfolio by funneling profits back into the market for a larger share. Options for reinvesting crypto can include:
- Diversifying a portfolio
- Investing in non-crypto assets
- Staking and lending
Investing profits into other cryptocurrencies spreads risk and can increase potential returns. Portfolio diversification limits fluctuations in a portfolio’s performance and helps to balance losses.
Investing cryptocurrency profits in non-crypto asset classes (such as stocks and real estate) is a good way of diversifying a portfolio and ideal for investors looking to broaden their experience outside of crypto markets.
Finally, some cryptocurrency exchanges offer lending or staking opportunities that can allow investors to earn passive income via rewards or interest.
When To Play for Keeps
It’s no easy task to know when to take crypto profit and keep it.
Personal financial goals and circumstances come first, and some of the factors to think about include:
- Risk tolerance
- Financial goals
- Portfolio goals
- Tax implications
It can be worth reconsidering if a HODL strategy causes significant anxiety or stress. Investors who find themselves lying awake at night should reconsider holding onto crypto investments and weigh up whether to take out some profits and reduce overall risk exposure.
Those profits can still be reinvested later on.
In addition, external financial goals can help orient investors. If taking out crypto profits would help alleviate a debt or make a significant financial purchase, it may be a good time to divest from the market.
Investors should review their tax obligations before committing to taking crypto profits out. Selling crypto may result in capital gains taxes, so it’s essential to consider the implications of taking out profits.
Tips for Successful Reinvesting
There is no guaranteed formula for succeeding in cryptocurrency investing. So, the most important piece of advice is the same as with other investments:
Never invest more than you can afford to lose.
However, there are several tips that investors can follow to maximize their chances:
- Conduct thorough research
- Diversify portfolios
- Plan ahead for the long term
- Stay informed
It’s essential to conduct thorough research before investing in any cryptocurrency. Knowing how to read “candle charts” and understand market trends is vital.
As we’ve repeated above, diversifying investments spreads risk.
Cryptocurrency investing isn’t a “get rich quick” scheme – in spite of the buzz. A long-term perspective helps investors make rational decisions and avoid falling victim to short-term market volatility.
Make Smarter Investments
Investing in cryptocurrency can be a lucrative way of generating profit.
Yet taking crypto profit out is no easy decision for any investor. With a cool head, a long-term game plan, and careful consideration of goals and risks, investors can maximize their returns.
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