Now that Bitcoin is covering new ground in the pricing and long-term holders are in the money, some investors may wonder: should I sell my bitcoins now? In this article, we unpack this dilemma, making a case for both choices and giving tips for those who want to sell crypto.
Key Takeaways
- The Bitcoin market is volatile if we compare it to fiat currency, commodities, or large stocks and indices. Unlike those assets, BTC can move for a few percent in a matter of hours, making inexperienced traders panic sell.
- Except for selling impulsively, there is nothing wrong with selling to take profits or exit the market. Selling has some implications, like creating a tax event or potentially missing out on a price swing.
- There are more strategies than selling in bulk: for example, dollar-cost averaging, scaling out, and hedging. The profitability of each strategy varies and depends on the risk appetite.
The Elephant in the Room – is the Bitcoin market volatile?
If you are looking for the answer when to sell Bitcoin, you likely already own it and have at least a general idea of what it is and how it works. In case this assumption is wrong, a brief explanation is in order.
Bitcoin is a decentralized digital currency or a cryptocurrency because its transaction history is recorded in a cryptographically secured ledger. It is not overseen by a central authority or bank but instead maintained by a network of nodes worldwide. The digital nature of Bitcoin makes it a uniquely different asset in comparison to stocks or currencies. Therefore, this market follows some rules of traditional financial assets but has its own quirks.
For example, every other piece on Bitcoin tells you it is a volatile asset. Essentially, it means its price can change quicker and more dramatically than in more stable assets. But now, after the Bitcoin ETFs boom, it is a more widely recognized digital asset. So is it still true that Bitcoin is volatile?
The answer depends on the frame of reference: do we compare it to traditional financial assets or other cryptocurrencies? If the former, then yes: the lowest BTC’s 60-day volatility rate in 2021 was 5.15%, and the highest was 29.1%. In comparison, the same metric for gold stayed between 1.3–3.3%, 0.681–2.47% for NZDUSD, and 0.438–1.35% for USDEUR. Bitcoin has slowly trended toward lower volatility but by 2024, not enough time has passed to bring BTC to the level of gold.
This is not to say that Bitcoin is more volatile than the stock market in general. The most volatile stocks have a 30-day volatility rate of 25% or more, reaching over 200% in extreme cases. Mid-cap altcoins, in comparison, show a 20–85% volatility rate in the same time frame. Both make Bitcoin with its single-digit volatility rate look like digital gold.
When is a bad time to sell Bitcoin?
The takeaway from the previous passage is that while Bitcoin no longer demonstrates extreme price swings, its price still changes more noticeably and swiftly than for commodities or currencies. Should circumstances allow for it, a few hours in the crypto market can still give you a scare and drop the virtual currency’s price by a few percent.
While there are no definitive answers to questions like when is a good time to buy Bitcoin or plan to sell it, there is actually a rock-solid answer to when the timing is at its worst. Avoid panic selling: this is a prime example of an impulsive trading decision. If you sell prematurely, you can miss out on the recovery or end up having to re-enter at a poor time. To safeguard yourself against a sudden price drop, it is better to set some positions in advance, and we are going to cover this further in the article.
When to sell crypto?
Depending on your situation, you may find a better investment opportunity or you just might need the money. Selling or exiting a position is normal behavior on the market, so don’t let “paper hands” get to you. Here are some things to consider when making this decision.
What do I get if I sell Bitcoin?
- Your gains and losses are realized only when you sell or exit the position. While you hold, you still have the chance to see your investment portfolio go back up but also, your profits are on paper only until cashing out.
- By freeing up a portion of your portfolio, you will be able to take advantage of other investment opportunities. Other assets? Ethereum or other even more volatile altcoins? More BTC? As long as it brings profits!
- Selling Bitcoin creates a taxable event in countries where cryptocurrencies are taxed. After selling for profit, you might need to pay capital gains tax, and if you sold for a loss, you should claim capital loss for a tax subtraction. Normally, the process is a bit more complicated and depends on the jurisdiction.
What do I get when I don’t sell Bitcoin?
- If you choose to hold Bitcoin, even if you are currently suffering losses, in case the situation turns around, your loss will be erased. If Bitcoin goes up instead, that is an even more favorable turn of events.
- Holding Bitcoin also entails the risks associated with its custody and regulatory risks. You will need to make sure not to lose access to your Bitcoin wallet for any reason (hacks and loss of recovery phrase being the most common). As for the crypto-related legislation, it may not be entirely within your control but you can still keep an eye out for the news.
Ultimately, it is entirely up to you to keep holding through thick and thin or to realize your gains or cut losses. The important thing is to consider all factors and make an informed, measured decision.
How to find the right time to sell or buy back?
Decisions like buying or selling should not be made in a vacuum. What things constitute the proverbial pulse of the market that you should keep a finger on?
- Get a feel of the market sentiment. There are analytics services to help you, such as LunarCrush or Santiment. The fear and greed index can also be of great help.
- Use technical analysis indicators. It is best to learn as much as you can about what each indicator suggests but for general information, tools like the technical analysis by TradingView can suffice.
- Math is better than guessing. Plan your trades with things like break-even point and profit target in mind. The former is the price you initially paid for your BTC. The latter is a concrete figure to sell BTC for profit which you determine yourself. If your crypto exchange has it, use stop-loss orders to automate cutting losses instead of panic selling.
How to proceed with selling crypto
Selling the entire bag at once is not the only way to proceed with selling your crypto. You can sell BTC gradually or even short Bitcoin to reduce your risks. The strategies have widely-known names:
- Dollar-cost averaging (DCA) is not only for buying an asset in set increments. You can also sell crypto in fixed amounts at regular intervals.
- If instead of time you use gains percentage, the strategy is called scaling out. For example, if you bought BTC at $50,000, you can sell 10% of the investment every time it gains 5%, starting from $60,000.
- We have already mentioned stop-loss to automate selling instead of having to do it when the price drops. The specific type of order is called trailing stop loss. Instead of a certain target, this order will be executed if the market price drops by a predetermined percentage (e.g. 10%).
- Advanced traders use short (sell) orders for hedging. You can use another asset’s market to place a short trade to counterbalance the position in Bitcoin. Alternatively, a put option can guarantee that you will be able to sell Bitcoin later for a predetermined price.
How effective are these methods? Let’s review an example with historical data and some real figures: imagine it’s late 2020, and you feel like a Bitcoin bull run is coming. You buy $1,000 worth of BTC on November, 5 and decide to sell $100 worth of BTC every month. If the Bitcoin price declines for three consecutive months, you sell what you have left.
This strategy would see you break even in September 2021 but the exit trade would need to be made in July. In this case, your profits would be $800 made from monthly selling plus $1,717 from the exit sale.
If you extended it to break even, the strategy would last until February 2022. In addition to the $500 from the extra months, the closing trade on February 5, 2022, would bring $1,400.
In comparison, if you had sold all BTC bought in November 2020 at once at the very top, it would have brought $4,878.10. An exit trade in December, after the price peak, would result in $1,883 plus $300 since breaking even. Again, note how both these scenarios happen because of concessions to the initial strategy and the benefit of hindsight.
Conclusion
When Bitcoin is in price discovery, selling it at the right time comes down to luck. We hope the strategies and tips we covered can help you convert your crypto holdings for profit at any time, with no luck involved.
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Frequently Asked Questions
Is Bitcoin a buy, sell, or hold right now?
Indicators like technicals or the fear and greed index can help you understand if you should buy, sell, or hold Bitcoin. Reading and understanding them is also important because technical indicators can be of more use to traders and the fear and greed index is more about the general sentiment on the market.
Should I sell my crypto for a loss?
Selling crypto for a loss generates a capital loss for tax purposes and relieves you of custodial and regulatory risks. Some may suggest holding the bag until the next market cycle but not all cryptocurrencies get a chance to repeat their record prices.
How do I know when to sell my Bitcoin?
You can see a change in the Bitcoin price trend coming by referencing technical indicators. If you aim for a longer term, you can try extrapolating the history of bull runs and halvings to find the time frame when the rally peak is most likely to occur. Just remember that the crypto market is less predictable than traditional markets and past performance does not guarantee future results.
When to sell Bitcoin for profit?
Technically, selling Bitcoin for any price above the break-even point will yield you profit. You can set a profit target if you have an idea of the returns you would like to get. To sell for maximum profit, you would want to watch out for trend changes and sell at the top.
Disclaimer
This article is not a piece of financial or investment advice. When dealing with cryptocurrencies, remember that they are extremely volatile and thus, a high-risk investment. Always make sure to stay informed and be aware of those risks. Consider investing in cryptocurrencies only after careful consideration and analysis of your own research and at your own risk.
