A bear market is the time to prepare your strategy and plan for the future.
It might seem odd, discussing a strategy to cash out your crypto (at a profit) in the middle of a bear market. But now is the time to make plans for the next cycle – which will surely come, sooner or later.
This does not constitute investment advice. It is a suggested strategy for consideration, no more.
The strategy outlined below is not for expert traders who are experienced in calling the market, jumping in at the bottom and exiting with massive profits at the top. This is for regular investors, who are smart enough to buy crypto and hold until prices are significantly higher.
The emotional rollercoaster of the market
Markets have an unsettling effect on investor psychology. In a bull run, it’s tempting to keep holding, because it feels like the price will never drop – it could do another 5x, 10x, 100x even. At the peak of 2017’s bitcoin rally, analysts were calling for $50,000 and $100,000 BTC within a few months. We know how that ended. Similarly, in a bear market, it feels like prices will never turn around, that everything is going to zero. As you’ll appreciate, neither are true. The market can remain irrational longer than you can remain solvent, sure. But trends do not last forever.
So what do you do when the market finally turns around and – having spent months fighting the urge to panic sell (maybe unsuccessfully) – you just can’t bring yourself to sell? Even when a little bit of you knows the party won’t go on forever.
Answer: take emotion out of the equation. Make a plan now. Fix a strategy, commit to it, follow it like a bot. Buy and sell algorithmically, when the price hits points you’ve pre-determined. Here’s an example.
You buy BTC throughout the downtrend, a little every week or month, and probably past capitulation and trend reversal, until BTC is well on its way up again. By the time you’re done buying, your cost basis (the average price you’ve paid) is $5,000 per BTC and you have 3 BTC. Total expenditure: $15k.
You know BTC could rise a lot – A LOT – this bullrun, given its past behaviour. That $100k figure is possible, sure. Equally, you know that nothing is for certain, especially in this sector. So when the price hits $15k, you cash out one of your BTC. You have effectively zeroed your costs (this ignores any capital gains taxes owed), regaining your original investment and still holding two thirds of your BTC. Nice.
What next? BTC continues to head up, correcting here and there, but you have no idea where it will top out. So you decide to sell a percentage every time BTC rises by a given amount. For example, sell 20% of your holdings every time BTC doubles in price. That way, you never sell everything. You don’t get the best price, sure – but not many people call the top and act on it. You do ensure you’re in profit.
At $30k, you sell 20% of your remaining 2 BTC (0.4 BTC) for a total of $12,000.
At $60k, you sell another 20% of what you have left (0.2 x 1.6 = 0.32 BTC) for a total of $19,200.
At $120k, you sell 0.256 BTC for $30,720.
Maybe you also decide this is life-changing capital moment, and you sell another 1 BTC for $120,000, while keeping the rest safe in case the price rises further. Your call. Just don’t act impulsively, and don’t try to jump in and out of the market if you can avoid it. That almost always leads to losses.
BTC tops out at $150,000, and you don’t make any more sells. On the way down, you may like to buy back in at a lower price – but given the dynamics of previous bear markets, you’d be well advised to wait and see where things go, because the price can fall to a fraction of its high.
You can tweak these figures however you want. Sell 10% on a 50% rise, for example. The idea is to ensure you’re never second-guessing the market, and to make sure you’re always in profit. If you have the funds, the foresight and the guts to have bought a long time ago and held, or at a very beneficial price, then taking significant profits using a small percentage of your holdings can be a very smart move.
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