The crypto market is tough to crack, as it does not adhere to the same rules that the stock market does. It has its own personality, and this can be intimidating to someone who has so far only had experience with trading stocks. Veteran investors themselves exercise a lot of caution when talking about the crypto market’s direction, so you can imagine how difficult it might be for newbies.
While many people believe that the best way to go about investing in the crypto market is hodling, there are those who brave the market and sell when they feel the time is right. But how do you know when to sell crypto? That’s something we look into in this guide.
The Crypto Market Is a Volatile Beast
First, it’s important to get a sense of what the crypto market is like. It’s not like the stock market, where if you invest in a good business, you’re bound to see your portfolio increase over time. There may be short-term ups and downs in the stock market, but a good business with strong fundamentals always prevails.
That is not so with cryptocurrencies. For example, Bitcoin may be the flagship asset of the market, but it can drop tremendously in the span of hours or days. However, the flip side is also true; it’s not altogether uncommon to see an asset double in value in the same span of time.
This volatility is the key challenge when trading cryptocurrencies. Unfortunately, predicting these drops and gains is not a precise science. There are some reliable ways to learn if an asset will experience a rise—consider the effect of all the Ethereum 2.0 testnet news and the rising value of Ethereum.
Bear in mind that many of the fundamental tenets of investing in cryptocurrency still apply, volatile as the market is. If the basic function of an asset seems sound, then it’s still worth riding through the volatile periods.
When to Sell Crypto?
The following sections cover some situations when you might want to sell the crypto that you hold. These are not hard-and-fast rules, and you should do your own research and exercise caution, but they are certainly worth bearing in mind.
If There Has Been a Lack of Development Progress
Sometimes, you’ll see that a cryptocurrency project and its associated token have gotten off to a great start, making ambitious promises. The token does well and quickly rises in value—only to slowly bleed in terms of price over weeks or months. This steady drop in value sometimes happens because a project simply does not make enough development progress.
Crypto teams are still building products. If these products aren’t coming to fruition, the investors will quickly see through that. That’s why teams put such an emphasis on being transparent and offering regular updates. Without such communication, it’s reasonable to assume that the team isn’t meeting its development goals, and that is a sign that you may want to sell.
If You Have Gained a Substantial Amount
On the other side of the spectrum, if you have made a substantial amount from your crypto purchase—let’s say the asset has doubled from its initial price—then this may also be an opportunity to sell. The project may very well continue on an upward trend with strong growth, development, and market position, but a trader may want to take the gains that exist.
That decision depends on you. If you want to cash in and reallocate your capital, then this might be a good move. Otherwise, you can simply sit on the holdings if you feel that the project has sound fundamentals.
You Want to Reallocate Your Funds
Whether you’ve experienced strong returns or losses on a purchase, you might want to consider selling the asset to reallocate funds—to either cash in or cut your losses. Many traders do this, as more often than not, you’ll find that your assets are in the red.
Taking whatever holdings you have and putting them into another project could allow you to bounce back from a loss or capitalize on another promising asset. But remember, none of this is guaranteed, so you have to be sure of your decision. If you feel like you’ve invested in a sound project, stick to that, and don’t reallocate funds willy-nilly.
A Spate of Negative News
The crypto market lives and dies by the news cycle. While this is also true of the stock market, cryptocurrencies are far more heavily influenced by what takes place in the media. With how transparent everything is, and the fact that influencers can have a large impact, it’s unsurprising that cryptocurrencies can move up and down by double-digit figures because of headlines.
Every now and then, you’ll see a string of negative news related to a particular project—and the token subsequently tanking. It’s important to keep a finger on the pulse in the market, and this can give you a very strong sense of where a project is going.
For instance, the TerraUSD crash saw a string of negative incidents. While the token began tanking quickly, many investors cashed out their LUNA before some of the later developments. It will be impossible to time this perfectly, but it really does help to keep this in mind as you are trading.
What is cryptocurrency?
Cryptocurrency is a digital currency in which transactions are verified and records maintained by a decentralized system using cryptography, rather than by a centralized authority, such as banks or government.
What is Bitcoin?
Bitcoin is a decentralized digital currency that you can buy, sell, and exchange directly without the need for an intermediary. Anonymous developer/developers Satoshi Nakamoto created it, calling it an electronic payment system based on cryptographic proof instead of trust.
How to choose crypto exchange?
Investors must choose a crypto exchange to trade cryptocurrencies. It is important to consider a number of important factors for this, namely security and safety, the variety of cryptocurrencies available for trading, fees, rewards, and regulation compliance.
The Bottom Line
The crypto market is capricious, and even the most seasoned of investors run into bad episodes. The focus should be consistent and a solid rubric for investment, which can help stem any losses. That said, it’s not the case that the crypto market has strict hard-and-fast rules that will let you sail through smoothly.
The guidelines above will help you navigate the difficult waters of crypto. By no means do they guarantee success, but they are effective guideposts that will help you move forward. The basic investing rules still apply—never invest more than you can afford to lose, and always conduct thorough research.