This article was last updated on June 13
As I write this article, it seems most major Cryptocurrencies are oscillating on a seemingly daily basis by several percentage amounts following news of regulatory crackdowns or changing sentiments on social media. Further with more digital “coins” coming out at regular intervals it’s feeling like the Crypto space is becoming a pyramid or pump and dump scheme.
Just look at some of the names these new coins are getting, like “scam-coin” which raised $70M in one hour! They are not even trying to hide the intent of their digital currency. Still among all the noise a lot of people are asking, especially those who have recorded some phenomenal gains, should I sell now to take some money of the table or diamond hands and hold on (and possibly buy more!)? Here’s a look at the options from my view point.
Should I Sell?
If you have made a decent profit, which means anything more than a doubling or tripling of your initial investment based on the latest prices, then given the recent volatility many personal finance experts say it maybe a good time to sell an amount equal to your original investment up to 50% of your holdings. This way you are playing with house money while taking enough off the “table” to cover taxes and enjoy a very generous return compared to most other asset classes.
The logic is also that by selling and taking profits now, you can swoop back in and buy more at a later did when the dust settles. No one can really predict the wild swings of Crypto and the smaller or newer a digital coin, the more the volatility. Which could mean huge upside or big time downside. So selling now, and coming back later could be a prudent move if you want to convert some of your digital gains to real US dollars in your bank account.
The one other thing to consider is the tax implications of selling. Right now any unsold positions equal unrealized gains or losses. But as soon as you sell you may have a significant tax bill, especially if you bought a long time ago. So you need to ensure you keep some of your proceeds around to pay estimated taxes or have it ready for filing time. Alternatively if you want to lower your tax hit, hold on for more than 12 months and pay the lower longer term capital gains tax. But don’t let taxes be the main decider if you buy or sell, just make it one factor to consider.
When in doubt, hold (or “hodl” as some say). With all that is going on and 25% swings up and down on a daily basis, holding could be the best option. This is particularly the case if you have only invested a relatively small amount and can ride out the short term swings because you think longer term, one or more of the Cryptocurrencies are here to stay and will become a core part of the financial ecosystem.
I am in this bucket after opening a free account with BlockFi (thanks to their $250 bonus promotion) and recently buying $1,500 of Ethereum and $250 of Dogecoin. Ethereum I believe is more than just a digital currency (like Bitcoin) and instead provides a broader platform to enable Crypto “Apps” that will add a lot more value over the longer term. Since I am happy to hold for the next few years and its not a big investment, I can live with downside in the near to medium term. Dogecoin was just a momentum play and I do not expect that to be a core holding longer term, but gives me a way to get a better understanding of Crypto and enjoy the show that Elon Musk is putting on around this coin going to the moon!
If you are confident in the long term future of Crypto and any specific coin(s) then this latest correction could be a good time to buy even more Bitcoin, Dogecoin, Ethereum or whichever digital currency/platform you believe in. Many strategists, including some from large banks like JPMorgan predict that in the next 1 to 3 years, the price of Bitcoin could go over $100,000 per coin and push its market cap above stocks like Apple.
So buying now could mean a tripling of your money in a relatively short time – not many places you can get that. But it will likely be a bumpy ride due to all the speculative mania and market manipulators looking to make a quick buck by shorting or pumping Crypto at regular intervals.
I’ll post updates on the above as things change and feel free to share your opinion in the comments below. Enjoy the ride.