If we can establish the fact we are in a crypto bull market, the biggest question for investors becomes when and how to sell their crypto. Even if you already had a plan in place, it’s not a bad idea to reconsider where you plan on taking profits and in what manner you will do so.
Below is a framework of personal and contextual variables to consider in your take profit plan for the best possible exit. If you are in the camp that someone should never sell their crypto, then this segment isn’t written for you. But be warned, everything that goes up must come down to some extent for some period of time.
Do You Have A Target In Mind?
If you plan to just “read” the market without a fixed set of take profit levels, you are likely to become a victim of your emotions when you should be selling. Most investors failed to take profit in 2017 because they held onto their portfolio. They planned to time the top or squeeze out more money, only to realize the run was over and prices were slipping.
Many of the top reputable investors called $20,000 to be the cycle peak months in advance. But that didn’t stop talking heads from changing the narrative to $100,000, enticing bag holders to stay in longer for another set of 5x returns. If you want to lock in profit, your strategy needs to include a set of levels where you plan to unload portions of your portfolio, with a bit at each stop.
How Do I Scale Out?
Let’s assume you scaled into the market and didn’t buy a lump sum at one point. You would scale out the same way you came in. If you’re thinking, “I bought all at once and am doing well, so I should sell all at once,” then ask yourself if you bought at the perfect time. The answer will be no. You are better off moving out of your position in intervals just like an experienced investor enters the market. Start selling small amounts in a price zone that is below your final prediction.
For example, if you own 10 Bitcoin, start by selling .5 when you think Bitcoin is at a quarter or half of its cycle top. Preferably you will sell this .5 on a really green day rather than a dip in order to keep your sell average as high as possible. As Bitcoin continues to climb toward its peak destination, this will be time to increase your offload to decrease your exposure. Your next sell might be at 60% for 1 Bitcoin, 75% for 5 Bitcoin, and so on.
Timing the top is a fool’s errand. Success is selling what you plan to sell at a value that’s 75% of the top, which is very achievable if you scale out with a plan. You may now be thinking, but even if I scale-out, how can I guess where the top might be to do so responsibly?
Find Your Favorite Model
This is probably the most critical part of the sell equation. Yes, there are narratives that institutional money changes everything this cycle, and Bitcoin will push to $500,000 or $1M. But counting on the price to achieve these levels this year seems more unlikely than likely… Especially if you believe in past data as a roadmap to future data. Currently, the most popular models pin Bitcoin’s top between $100,000 and $300,000.
My top models include the Stock-to-Flow by PlanB, Top Cap Model by Willy Woo, and the Bitcoin “Rainbow” Chart by Blockchain Center. Once you have 3 models/predictions from reputable crypto analysts, take the average of the three. My average from my 3 models come to $241,000.
This is a solid average considering the average of the top for 200 models was about $231,000. It isn’t necessarily wrong if your average is far off from $231,000. But bear in mind your prediction strays away from technicals and falls into the realm of fundamentals. This requires a different set of evidence beyond historical price data.
Pro Tip, Use Multiple Exchanges
Another reason timing the top may be a challenge, is exchanges may begin to fail during peak euphoria. Exchanges were so overwhelmed in 2017 that new users had to wait months for access to the platform. Early in this cycle, we have already seen heavy volume days take a toll on exchanges, causing crashes and minor outages. As exchanges boost their infrastructure, they fight a constant battle of bigger days and larger user bases. Don’t be married to one exchange. In the moments you plan to sell, have a handful of options you are comfortable using.
How Much Money Do You Desire?
This is the most personal aspect of the sell equation. But I can offer some guidance on how you should begin to answer the question. Now that you have a model in mind, the closer you try and time the top of the model or set of models, the more likely you are entering into higher risk territory. Setting a desired end profit goal is a responsible strategy. Factors to consider include:
- age
- money in the bank
- crypto’s percentage of your portfolio
- your overall risk tolerance.
If you are already well off and crypto is a small part of your net worth, scaling out of your position closer to the cycle top is reasonable. But what about if you are young with bills and over a third of your net worth is in crypto? It may be wise to begin scaling out early, even against that voice in your head telling you to hold out. It is also wise to think of three net profit figures: one that will satisfy you, one that will please you, and one that is your wishful goal.
Within the bounds of your selected models, work backward to write out the scenarios and how your three net profit figures can be achieved. You should end up with each coin in your portfolio having an average sell goal that is low, medium, and high.
An Example Of A Portfolio Scaling Out
Here is an example of a portfolio that holds 2 Bitcoin, 10 Ethereum, and 1,000 EGLD. The models above gave us an average Bitcoin top of $241,000. As discussed in the first segment, timing the top is a fool’s errand. Securing 75% of the top is a success for the average retail investor.
Let’s start with the Bitcoin position. When scaling out, your wishful goal should be to have your average at $241,000. Your middle sell average could be $180,000, which is still a success. Your lower sell average should be around $150,000.
To achieve these numbers, it would be wise to breakdown your total Bitcoin value and scale-out accordingly. Your first sell order could start at 0.1 Bitcoin. Then increase the value as the price appreciates. These periodic sales should be timed with market upswings, not corrections. And they should not take place in the final stage of the model approaching its peak. If your model predicts Bitcoin will do a 5x from current numbers, then assume your altcoins aren’t shit coins. Apply a similar multiplier to their current price to find a top.
Then find a middle and lower sell average to shoot for as goals. The same 75% goal mentioned above should stick true to your entire crypto portfolio. Also, if history repeats, Bitcoin in 2017 topped out about 20-30 days prior to the rest of the market. Once Bitcoin begins to stagnate at high levels, the clock is ticking for altcoins to be sold.
Keep in mind, risk increases with the more crypto you are hold toward your predicted top. This was only a hypothetical scale-out. You will need to answer the personal questions first to decide on your sell goals.
If You Aren’t A Perfect Buyer, You Aren’t A Perfect Seller
If you made it this far and feel the suggested strategies above don’t apply to you because your plan is to sell at the top, do this one exercise. Since your first entry into Bitcoin or any coin, circle on the price chart every time you have bought.
If your average purchase price was equal to or close to the lowest price in this time frame, then maybe you have a shot at timing the top. If the majority of your purchases were not on a dip and could have been better timed, this probably tells you that you were not perfect on the way up, so you won’t be perfect on the way down.
Next to nobody has perfect entries, so don’t count on a perfect exit. Fear is a strong emotion, but greed is much more potent and likely to cloud your judgment. So, when the cycle peak approaches and absolute euphoria kicks in, don’t count on perfection. Count on your plan. If you are a first time crypto buyer, we can help you get started.
Written By: Adam Tarlowski