The volatility of the crypto market can mean that your portfolio fluctuates a lot over time. Sometimes you’ll be up a lot in value, and other times it may seem like you’re bleeding out, but if you’re up on your investment, then it may be a good time to take some profit.
You will see all sorts of different advice for ways to take profits and invest on the Internet, but it’s important to remember that there is no one size fits all approach for taking profit in crypto or any other investment. That’s why we’ve assembled this guide of the various “best” ways in which you can take profit in crypto.
Whether you’re looking to cash out completely or ride the ups and downs of your investment, there will be a profit taking strategy that fits your personal situation. Let’s jump in.
Things to Consider When Taking Profit
Before getting into your options for taking profit in crypto, it’s a good idea to note things to consider for your personal situation. Mainly the things you need to consider when taking profit are:
- What the purpose of the investment is
- What the overall outcome your hoping for is
- How much risk you’re willing to take
- Your current financial situation
There are other things to consider, but the above are good starting points for you to think about before making your moves with your profits.
Options to Take Profit with Crypto Investing
When you have profit to take in crypto, the below options/ideas are worth considering for your personal situation. These options are presented in no particular order, and which one seems best for you could be completely different from another reader, as each option has a lot to do with risk tolerance. De-risking is generally a factor in each option. Let’s start with the obvious, which is taking profit.
Option #1: Take Profits/Cash Out Initial Investment
Taking profits or at least cashing out your initial investment is a strategy that has been used for a longtime. Cashing out the equivalent of your initial investment is a good way to de-risk (more on that option later), as if you take out the original amount you invested, you won’t lose anything if the asset ends up dropping in value. You can then either take that initial investment back to your bank to spend as you like, put it aside to reinvest later, flip it into another asset right away, or re-balance. We’ll discuss each of these options later.
Similarly, you can just take out the profits you’ve made and leave your initial investment, which is also a form of de-risking.
Option #2: Cash Out Fully
A more extreme version of the above profit taking option is to just cash out the entirety of your investment. If you’re up by a factor of 5x or more, this is certainly not a bad option. You’ll have more than your initial investment in cash than you did before, and there are likely lots of good options for that cash such as paying off debt, buying a home, or another large purchase that you may not be able to make using crypto.
If you cash out fully, you no longer face any real investment risk other than potentially losing out on more profits in the future. Of course, you’re not prevented from reinvesting your profits when you feel like after cashing out.
Option #3: De-Risk with Profits
De-risking essentially means 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 riskier assets into more proven ones. This can be especially true if you bought a small market cap altcoin that has suddenly jumped up 10x or more. While it’s certainly tempting to just let the investment ride, it is risky to do so.
Instead, you can de-risk by taking out your initial investment and reinvesting it into a more proven asset in the top 10 by market cap such Bitcoin or Ethereum.
Similarly, you can flip the entirety of your investment into a more proven asset like Bitcoin. This gives you a proven asset at a discount because you’re using profits to buy it. De-risking is similar to the next option.
Option #4: Rotate Profits Into Other Assets
Rotating your profits into other assets or rebalancing your portfolio, is another good option when looking to take profits. You may have heard of altcoin season and how traders rotate Bitcoin profits into other assets and vice versa.
You can take your profits from one investment and put them into a new one that you expect to perform well. This is a more risky option, but it can also result in you having two assets that go 10x instead of just one.
Option #5: Rebalancing
Rebalancing just means adjusting your investments to keep specific percentages of assets in your portfolio.
For example, you may want to keep 80% of your portfolio value as Bitcoin. If another asset in your portfolio starts to go up, it could cause the Bitcoin ratio of your portfolio to drop to 70% or something similar. In this case, it may be a good idea to take profits from that asset that has gone up in value and convert them into Bitcoin to keep the Bitcoin percentage of your portfolio at 80%.
Option #6: HODL
Hold On for Dear Life (HODL), or holding, is one of the most simple strategies to employ when your assets go up in value, but you aren’t actually taking profits.
HODLing is generally employed when the market is dropping. However, if you bought in at a good price point and are seeing big gains, 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, will depend on your views of where the asset’s price could go. For example, if you bought Bitcoin when it dropped to about $15k in 2022, you’re now seeing at least 4x on your initial investment. But, if you’re expecting it to reach $100k USD and beyond, then it doesn’t entirely make sense to cash out now. If however, you aren’t that bullish on Bitcoin’s price, it’s a good time to take profits or cash out.
Closing Thoughts
It’s never really a bad thing to take profit in crypto, but the level of profit you want to take and when you want to take it is dependent on your personal situation. There are many great options for your profits which could easily lead to even more, but it’s also a good idea to manage your investment risk, especially in a volatile sector such as cryptocurrencies. Whatever option you choose, as long as it was the right move for you, it’s the right one.
