It’s finally happened. One of your digital assets went to the proverbial moon. Your cryptocurrency pick is up over 10x and you’re absolutely beaming, but now what?
If your crypto assets see incredible gains it can be hard to decide what to do next. Do you sell it all, hold it, take profits, or something else? The answer to that question is entirely subjective to your personal situation, however, there are a variety of options you can consider. In this guide, we’ll talk about the different options you have when your coins and tokens see serious gains.
Investment Options For Your Gains
If you’re wondering what to do with your gains, then the below investment options/ideas are great ones to consider.
They are presented in no particular order, and which option seems best for you will likely be completely different from the next person, as it has a lot to do with risk tolerance. Let’s start with the basic strategy of holding.
Hold On for Dear Life (HODL) is one of the most simple strategies to employ when your assets take off in value. HODLing is just holding onto your investments, though it’s often employed when the market is dropping. However, if you bought in at a good price point and are seeing big gains now, it might be better to hold than to sell. Of course, this depends on what price you bought in at, and the current value, but if you’re seeing gains of something like 2x, it can be quite tempting to cash out.
Deciding whether to cash out, or perhaps cash out your initial investment at minimum (more on this in the next option), will depend on your views of where the asset’s price could go. For example, those that bought Bitcoin when it dropped to about $15k in 2022 are now seeing at least 2x on their initial investment. But, if they’re expecting it to reach its previous all-time high of just under $70k USD and beyond, then it doesn’t entirely make sense to cash out now. If however, they aren’t that bullish on Bitcoin’s price, it’s probably a decent time to take profits or cash out.
HODLing is best for cryptocurrencies in the top 25 by market cap. Not all cryptocurrencies will increase in value over time and there are projects that ultimately fail. A strategy of holding onto assets that have proven themselves over multiple market cycles is your best bet, even as they see big gains, because they’ll cycle back up again even if they drop.
Take Profits/Cash Out Initial Investment
A strategy that has been used for a longtime and a favorite of my grandfather is to take profits or cash out the equivalent of your initial investment. Cashing out the equivalent of your initial investment is a very good way to de-risk as well (more on that option later), as if you at least take out the original amount you invested, you haven’t lost anything if the asset does in fact drop in value. You can then either take that initial investment back to your bank to spend as you like, or put it aside to reinvest later.
Similarly, if instead you just take out the profits and leave your initial investment, you’ll be de-risking. You can either keep the profits or reinvest them into other assets (more on this later).
Cash Out Fully
The more extreme version of the above option is to instead just cash out the entirety of your investment. If you’re up 10x or more, this is certainly not a bad option. You’ll have 10x your investment in cash than you did before so there’s likely lots of good options for the cash such as paying off debt, buying a home, or a similarly large purchase that you likely can’t make using digital assets.
By cashing out fully, you no longer face any real risk other than potentially losing out on more profits in the future, though of course you’re not prevented from reinvesting after you cash out.
As already mentioned in part, de-risking is essentially reducing the risk you’re facing in the market. Cashing out all or part of your investment is one such way to de-risk, as you’re no longer exposed to market fluctuations.
De-risking also refers to moving out of risky assets into more proven ones. This is especially true if you have a small market cap altcoin that has suddenly jumped up 10x or more. While it’s certainly tempting to ride that asset’s gains, it is risky to do so. You could instead de-risk by taking out your initial investment and reinvest it into a more proven asset like Bitcoin or a stablecoin.
Similarly, you can flip the entirety of your investment into a more proven asset like Bitcoin. You get a more proven asset at a discount because you’re just using profits to buy it. Which brings us to our last option.
Rotate Profits Into Other Assets/Rebalancing
Rotating profits into other assets or rebalancing your portfolio, is another good option when one of your crypto assets goes 10x or more. You often hear of altcoin season and traders rotating Bitcoin profits into other assets and vice versa.
You can take the profits from one investment and put them into a new one that you expect to perform well. This is more risky, but can also result in you having two assets that go 10x instead of just one. Due diligence of assets and their markets is key to this option because of the potential risks.
Dealing With Capital Gains
Not as fun as all the other options on this list is dealing with your potential capital gains on your 10x coin. The key to capital gains for crypto is the price you bought them at, and the price of the asset when you either cash out or swap into another crypto. The difference between those two numbers is the amount you’d report on your taxes for capital gains. It’s very important to keep track of these numbers because you could end up costing yourself more in tax if you just arbitrarily input numbers. You could also be caught for fraud should you make them up.
Investing in general is a risk-taking endeavor. With cryptocurrencies it can feel doubly so. That’s why it’s important not to invest without any sort of investment strategy in mind. That’s why it’s a good idea to learn about basic investment strategies just in case your risky investment turns out to be a big time winner. Once you’ve looked at all your options, it will likely become clear which is best for your personal situation.