With growing numbers of people getting into crypto, there is a far greater focus on finding the right to buy, than knowing the right time to sell. But unless you have a clear strategy for realising any profits during a rising market, you may kick yourself if and when the market turns red. So we’ve gathered some of the best advice for knowing the right time to sell your crypto.
Before we share what are considered some of the most sensible strategies for selling crypto, it is worth reiterating that, because of the risks involved in buying crypto in the first place, there is no guarantee you’ll find yourself in the position of being able to sell at a profit.
You don’t have to look far on social media for stories of overnight millionaires and even billionaires, who made their fortune from crypto. They are however, the exception, rather than the rule, better known as survivorship bias. The silent history of less successful investors is completely overlooked.
Knowing this should temper any temptation to invest money you cannot afford to lose. You should only invest what is known as discretionary income, what is left after all your fixed costs and other savings commitments are accounted for.
If that discretionary pot is your starting point, it is unrealistic to expect to get rich from investing what are likely modest sums in crypto.
For starters, what does rich even mean. If you earn an average income in a country with an average standard of living and move to the poorest part of the poorest country on earth, you’d feel extremely wealthy and extremely fortunate. You’d feel the opposite by moving to the richest.
So if the first rule of buying crypto is only using discretionary income, the first rule for knowing when to sell crypto is having a clear objective. That objective might be something very tangible you can put a number to:
If you don’t have a specific objective, don’t worry, you can consider your objective to simply be building a savings pot for an uncertain future.
With an objective in mind you can create a simple strategy for automatically selling and realising profit, in a very similar way that Cost Averaging takes the stress out of trying to time purchases.
Lopp.net has a webapp that calculates it on the fly and which is available as a CSV download. We include some example outputs below, with explanation.
The original plan starts with a slightly different take on discretionary income, considering financial net worth, but it amounts to the same thing.
Once you have set the level of that initial investment, you set what is termed a ‘rake’ which is like a tax on your crypto profits, paid in fiat (dollars/euros) that goes toward your objective or target.
The rake is applied when your crypto price increases by a set amount - called the ‘Cycle Multiplier’. You agree on the number of ‘Cycles’ you want to progress through, which is the number of times price increases by the ‘Cycle Multiplier’.
You can play with the inputs to suit your objectives, but be pragmatic in terms of the Cycle Multiplier and number of Cycles. The screenshot below is based on the following the inputs. Note the webApp only works in Dollars:
So from a modest investment of $530, after 10 Cycles you’d made just over $47k realised profit, with over $189k still invested in Bitcoin. However, this assumes a Cycle Multiplier of 2, which is a doubling in price, and the expectation of 10 Cycles, which means the price trigger at the tenth and final cycle would be $54,272,000. Is that realistic?
The price Bitcoin would be after 10 doublings, starting at $53,000
If however, you set your Cycle Multiplier at 10%, and leave everything else unchanged, the price to trigger 10 Cycles would be just under $137,500, you’d have 90% of your original investment still in bitcoin AND have cashed out $557. Much more realistic.
You might want the Rake to be smaller than Multiplier because you want to emphasis building you Bitcoin fund; the example above puts more emphasis is on realising profit.
The key with this Savings Plan is sticking to the parameters, however you decide to set them. If it was that easy to know when to sell (or buy) everyone would have bought when price was in single digits and be sat on millions or billions in dollar value.
The truth is that very few people had that insight, and even fewer were pragmatic enough to see the number of double cycles that were coming.
You will of course see plenty of people committed to never selling at any price. That is fine if you truly believe that your chosen coin will become de facto money, in which case you can spend it natively, if not that mentality does imply some cognitive dissonance. What is the point in owning something you're never going to sell?
We aren’t rational beings, so psychologists can come up with any number of reasons why we’ll make decisions that seem irrational, especially when it comes to money. That is the number one reason why having a structured plan for realising profits, and telling you when to sell your crypto, is such a good idea. There is no right time to sell, only a sensible time to sell.
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