Imagine you found an investment opportunity that could realistically hand you a 1,000% return over just a few years.
That’s a rare and special thing.
Also, it’s the reason you’re getting into crypto. You want to find that next big altcoin. Maybe it’s on my list of Altcoin Reports?
So, like all responsible investors, you make sure to turn that 1,000% opportunity into a 500% or 200% opportunity. Intentionally, with pride.
By taking profits.
Twitter and YouTube told you that’s the responsible decision. “Common sense.” “Risk management.”
Less is not always more
It’s hard to get a 1,000% return on your investment when you sell half of it after the first 100% gain.
Yet, that’s exactly what people do.
That old rule of thumb: sell half after the first double. Free money!
Free money now, but you pay for it later. You’re giving up on every penny of growth that comes from now until forever.
On top of that, you’ll owe taxes on gains without knowing whether your remaining tokens will ever be worth anything.
In the US, that means you’ll have to sell an extra 20–35% of your tokens in addition to the half you got “for free.” In other countries, you may have to pay 50% or more to your government.
Isn’t that ironic?
You give up 60% to 75% of your investment to get back the money you started with and still expect to get a 100x moonshot on the 25%-40% remaining tokens.
You never know what might happen if you see it through
“Mark, don’t you get it? I’ll buy back in after the crash”
Sounds good if you can pull it off.
Sometimes, that altcoin goes up another 100–500% after you sell. Then, when it inevitably crashes 50–90%, you have to buy back into the market at the same price you sold at.
Why not let your investment go where it wants to go?
Buy an equal allocation to each altcoin that you like, let the winners run, and let the losers go to zero.
When you lose, you write off the losses as a tax deduction. When you win, you keep all of your gains until you need to sell or use your tokens. Let them go up 1,000% and crash 90%. Catch them when they fall, ride them when they rise, pick up that next 1,000% and repeat forever. You can allocate fresh cash along the way.
Taking profits is like quitting a marathon after 3rd mile.
Sell during altseason or not at all
Sometimes, you might get altseason, that brief, beautiful time when everything goes bonkers. Your dead altcoins will boom and your good altcoins will skyrocket.
That’s the time to sell your losers and any altcoins you’re not interested in keeping. Cash them out 100% and don’t look back. Full exit. Don’t trade for bitcoin or save to buy more after the dip. Take the money and run.
After you set aside money for taxes, you can use your remaining proceeds to buy more of your “good” altcoins after the inevitable 50–90% drop that comes after altseason ends. Or, use the money for something else.
As for the winners or projects you still like, let them run to zero or infinity.
Stake, delegate, and participate in activities that let you grow your portfolio without trading. Accept that these altcoins will crash like the rest once altseason ends.
How will you know when it’s altseason?
Subscribe to my newsletter, Crypto is Easy, and I’ll tell you when we’re getting close.
I’ve lost a lot of money taking profits. I’d hate for the same thing to happen to you.
Here’s the strategy:
- Hold your winners. Recycle your staking rewards and buy more when their prices drop 50–90% from their most recent peak.
- Save your losers for a tax deduction at a future time. You get back 20–35% of your investment (or more depending on your tax laws).
- Whenever we get another altseason, exit any altcoin you don’t believe in. Sell it for cash (still HODL the ones you like).
Stick with your picks until you lose faith in the project. Better yet, contribute your time, computing power, effort, and expertise to the projects you like. Help them grow.
You never know how high the market will go before it falls, how low it will fall when it does, how long the upswings and downswings will last, which “losers” will die, and which ones will pull a magnificent recovery.
How do you manage the risk of 100% loss without taking profits?
Some people say you should short the market or set a stop-loss. If that’s too risky for you, consider trying my portfolio strategy or the specific tactic I talked about in my market update from January 11, 2023.
If you want to take profits, that’s fine. Just remember who you’re taking profits from:
Your future self.
This post is also available as an NFT on Mirror.
Mark Helfman publishes the Crypto is Easy newsletter. He is also the author of three books and a top bitcoin writer on Medium and Hacker Noon. Learn more about him in his bio and connect with him on Superpeer.