When should you sell your crypto

Selling should be easier than buying, after all there are innumerable options to buy but you can only sell what you already own1. However, crypto opens the possibility to invest to everyone, and when some people search for answers in the topic of selling all they find is: “HODL! Paper hands!”, and in some cases “DCA in, DCA out, time in the market beats timing the market”, which would benefit from some internal consistency. Today, I address that problem.

First of all, crypto is not different from any asset in this regard. You sell it when you would rather have something else. The considerations to make are:

  1. What you would be getting in exchange, and how much you want it or need it. For example, if you are selling your crypto to pay some medical bills or avoid going homeless, those are two excellent moments (and reasons) to sell your crypto.
  2. The period during which you are going to keep your assets, e.g. short-term or long-term. The risk, price movement, costs, and profits may be different when considering different time periods. For example, you may choose to sell your BTC to get some DOGE, because you are certain DOGE is going to 10x in the next few days and then you will swap back for 10x BTC.2

Depending on the timeframe for these considerations, you would be at some point in the spectrum between long-term investment and high-frequency trading. Normally, the safe advice is towards the side of long-term investment, and the risky advice3 towards the short-term investment, e.g. day trading.

“If you aren’t willing to own a stock for ten years, don’t even think about owning it for ten minutes.” — Warren Buffet

Different time frames for the investment imply different considerations and knowledge in the decision to hold one or another asset.

  1. Technical analysis is more relevant in shorter terms, it is based on quantitative aspects and largely automated, especially for high-frequency trading, at inhuman speeds.
  2. Fundamental analysis is more relevant in longer terms. Price movements are less relevant, and the main consideration is what is the “true price”, buying underpriced assets4, and selling them when overpriced.

For the shorter term, technical analysis usually has a greater impact. For the longer term, fundamental analysis is usually more relevant.

“Markets can stay irrational longer than you can stay solvent.” — John Maynard Keynes

The corresponding analysis will tell you when to sell. Finally, without any analysis, I would personally consider that as gambling. The analysis and methodology is what makes the difference. Some people may be finding now that they are in fact gambling, if that is the case and still you want to “be part of crypto”, take a safe bet on the largest5 currencies and educate yourself at least enough to understand if a financial advisor6 is providing good or bad advice.

I hope that helps.

1

I will keep it simple and not consider CFDs here.

2

Do not be misled by this example, see the point on fundamental analysis later.

3

Oftentimes it is not just risky but plain scams. If you are reading this, because you need to read the basics (which is what I am covering now) long-term options may be better for you and you should adjust expectations accordingly. Focus primarily on learning more than earning for a long time, because focus on earning without learning usually results in losing.

4

See e.g. value investing and “intrisic value”.

5

By market cap, BTC and ETH as of today. Nothing is truly safe, though.

6

Reminder: I am not one, just a random anonymous person on the Internet.

Cross-posted from the Sigmoid newsletter

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I write to have links to point at when discussing something (DRY). Topics around computers, AI, and cybernetics, i.e. anything.

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I write to have links to point at when discussing something (DRY). Topics around computers, AI, and cybernetics, i.e. anything.

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