Education • 4 min read
By Sophie Nicolas
Welcome to the last installment of our Bitcoin series - you made it! You may be wondering to yourself, is this the time to sell? Well, read this article on what you should consider before selling your Bitcoin to help you decide.
We’re sure you already know this, but consider what you could lose if you sell now as the price may be climbing to its highest point. This is the struggle of every investor - knowing when to pull your funds out. Investors have been duped before by spending or selling their assets too soon.
For example, in 2010, a man made the first real-world transaction with cryptocurrency and paid for two large pizzas with 10,000 bitcoins. This would have been the equivalent of about $30 (USD) back then. However, the price of Bitcoin took off and today, those two pizzas would roughly be worth over $82 million! This is a cautionary tale for all investors, to be absolutely sure that you’re getting the best price for your asset when you sell or spend it.
Filling out your tax returns for cryptocurrency is always a tedious task, as, in most countries, cryptocurrency transactions are considered “taxable events”. For example, if you exchange a cryptocurrency into a fiat currency such as EUR, if you pay in a cryptocurrency when buying a product or service, or if you exchange/swap one cryptocurrency for another cryptocurrency, you pay tax.
So, when you sell, swap or trade your Bitcoin, consider how much tax you could be paying on those transactions. Luckily, Bitpanda and Blockpit have joined forces to make your life a lot easier when it comes to crypto tax.
Another strategy to consider, if you really want to sell, is to sell just enough to make a return on your initial investment, and hold on to the rest of your investments for minimal risk. Selling about 20-30% could be a reasonable strategy for those wanting to sell Bitcoin for financial gains but don’t want to lose it all and start from scratch.
Ideally, you should have some kind of strategy in place anyway, one that lets you look at the big picture and not act out of emotion (more on this a bit later). One approach could be to define one day per year where you look at the price and act according to your predefined strategy. Is the price above amount x? Then sell the predefined amount y. Is it below? Then keep on hodling.
Timing the market, eg. by finding the exact moment to buy or sell before an upwards or downwards movement, is really hard. This has a lot to do with the fact that predicting the future is impossible, especially with a rather volatile asset like Bitcoin and crypto in general.
Are you selling your Bitcoin because you genuinely think that is the best way for you to approach your investment? Or are you emotionally selling because the market is making you panic? A way to combat this is, ideally, to have a strategy for when to sell. For example, let’s say you sell once you’ve made five times your ROI after one year, then this could be your strategy going forward. This will help you to avoid reacting emotionally to the market.
We all know that in times of uncertainty, we tend to look to the past in order to learn from mistakes. The bull run in 2017 shares some similarities with our current bull run in 2020. For example, from looking at the past, we can speculate that this bull run is due to the Bitcoin Halving that happened in May earlier this year.
However, we must consider the main difference from the 2017 bull run. The 2017 bull run was purely retail-focussed and speculation which was fuelled by smaller investors who believed in Bitcoin. Now in 2020, we have bigger players, such as banks and economists who rave about Bitcoin becoming the new digital gold. These new guys are buying for long-term, not short-term gain.
Knowing when to sell or hold your assets is one of the hardest decisions investors need to make. Take these five considerations into account and try to remember if you’re in it for short-term gains or for the long haul.
Disclaimer: The information contained in this article is for general purposes of information only and is not investment advice in any form.
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