When and Ways to Take Profits
With bullish sentiment returning to the crypto market after a lengthy bear market in 2022, savvy investors should start to think about an exit strategy, i.e., when to take some profits.
Profit-taking exists in a few different ways. A few ways to approach this include:
– Converting crypto profits into fiat (USD, EUR, GBP, etc.);
– Converting from altcoins (particularly small to mid-cap ones) into Bitcoin and/or Ethereum;
– Going from cryptocurrencies to stablecoins;
– A combination of various methods.
I would recommend the last point, but increasing the amount of profit being taken into fiat and stablecoins when the market has been going crazy for a while and a significant dump is imminent.
It is pointless to throw in too many numbers here, as everyone’s financial situation and risk tolerance vary considerably.
From my experience, don’t underestimate massive 24 to 48-hour drops across the entire space; these things catch noobs off guard, myself included when I started.
My exit strategy
For brevity, I will break this up into four categories:
– Bitcoin (BTC) and Ethereum (ETH);
– Mid to major altcoins (ranked 3 – 30, based on market cap);
– Small to mid-cap alts (31-100);
– Micro and other small caps (<100).
Things to remember/assumptions
– Adjust figures accordingly to match your circumstances and what’s right for you;
– Price points (or multipliers -> 2x, 5x, 10x, etc.) provided hereafter are NO guarantee that these will be reached, even when considering all-time highs;
– These figures neither account for staking rewards nor (fiat) inflation;
– For each category, I will use $1,000 as the upfront investment.
For example, for those who find the numbers and percentages overwhelming, my calculations below go something like this:
$1000 – 15% = $850 à $850 – 20% = $680 à $680 – 40% = $408, and so on.
Just saying this in case you’re wondering why the total percentages per category go beyond 100% and found it all confusing.
OK, let’s begin.
BTC and ETH
$1,000 (ideally more) each into BTC and ETH, which are currently $24,600 and $1,700, respectively),
– 15% when each has done a 2x;
– 15% (of what’s remaining) after a 4x from present-day prices (~$98K and $6.8K),
– 25% after an 8x (serious numbers here)
Two options from here:
– Take 35-40% after roughly 12x, or
– Hold and ride out any new bear markets that arise, waiting for a following bull market. That’s up to you.
At 20x (crazy, I know, but don’t rule it out), withdraw the vast majority, leaving about 10% to see what happens.
Mid-sized to major alts (3-30)
– Take 15% after a 4x (so $600);
– 25% after 10x ($3,400 x 10 = $34K, then minus 25% = $8.5K)
– 25% after 20x
– (For cryptos ranked 3-10) I would take more profit at 25x; whatever works for you.
– 40% of what’s remaining after a 35x (for cryptos ranked 3-10).
If a 50x or even 100x happened in less than a year, then it would be sensible to withdraw the vast majority and possibly buy back in the event of a bear market.
– Small to mid-cap alts (31-100)
As we go into the altcoins with less than a $1B market cap, consider taking more profits by converting some into BTC, ETH, or a few major alts.
– Take 10% after a 5x
– 15% after 10x
– 25% after 20x
– 40% after 50x (take 60% after 50x for altcoins ranked 31-60)
– 80% after 100x (or take less and let the rest run, baby)
– Micro and other small caps (<100)
– Take 10% after a 10x
– 15% after 20x
– 25% after 40x
– 30% after 60x
– 50% after 100x
– 200x? Take the money and run.
Food for thought
– I could have assigned Ethereum to the second category, had Bitcoin by itself, and created additional categories, but it would have started getting too repetitive. Use this approach as a guideline to assist you/as a starting point, not something to follow by the book.
– You should consider taking more profit if what you have invested into cryptocurrencies is a much higher percentage of your net worth than the figure that’s usually recommended: 1-5%.
– There have been multiple cases of exchanges being overwhelmed and going down due to an avalanche of trading activity on their platform, particularly during a bull run (the November-December 2017 period comes to mind). Albeit less likely nowadays for reputable and regulated exchanges, don’t underestimate the probability of this occurring. The last thing you want is your funds to be stuck on an exchange you cannot trade or withdraw.
For this reason, use a hardware wallet: Not only is it the safest option, but you can readily transfer the funds to an exchange that isn’t down or trade within an in-house platform such as Ledger Live or Trezor Suite (more options with the former).
Image by Wit Olszewski on Shutterstock
– Remember, don’t let others tell you when to cash out; create a well-thought-out exit strategy that works for you, stick to it and move on.
– There’s no use constantly dwelling on something once the event’s passed. Yes, many of us do this, and I had this bad habit too. Use what you’ve learned from experience to be better equipped for the following cycle (let alone anything in life), as there will be plenty of bull and bear cycles along the way.
– Before wrapping up, you might be wondering, why I am talking about an exit strategy now when most crypto are down >60% from their all-time high? Well, the sooner you start thinking about this, the better prepared you’ll be when the time comes to cash out. Additionally, much of this will remain relevant in the years to come.
– I do not provide timeframes when Bitcoin or alts could hit 5x, 10x, etc., as it’s all guesswork, and no one knows.
Disclaimers
None of this is financial advice, and I am not a financial advisor.
The opinions expressed within this piece are my own and might not reflect those behind any project listed here.
Please do sufficient research before investing in any crypto assets, staking, NFTs and other product affiliated with this space.
I hold the cryptos listed here, with BTC and top-20 alts collectively accounting for most of my crypto portfolio.
I received no incentive from companies or entities listed throughout this article to discuss their product. An exception is a Coinbase referral link if you want to get some free crypto and then participate in their Earn program, whereby I get some commission from this.
Price data was obtained on 16 and 17 February 2023 (unless specified otherwise), with rounding used for simplicity.
If you enjoyed this article, I recommend following my Medium page for regular reports about crypto assets, blockchain technology, and more. Feel free to check out my publication as well, Crypto Insights AU.
Thanks for your support.
Featured image acknowledgements:
Main image by Nathapol Kongseang on Shutterstock.
Brand assets provided from the following sources:
BTC – https://pixabay.com/vectors/bitcoin-logo-currency-money-cash-225079/
ETH – https://ethereum.org/en/assets/#brand
ADA – https://cardano.org/brand-assets/
DOT – https://polkadot.network/ecosystem/brand-hub/