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Remember This One Simple Rule When Investing in Cryptocurrency

by Lora Lime 9 months ago in wallets
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You must do this even if you intend to keep your Bitcoin or another cryptocurrency.

Remember This One Simple Rule When Investing in Cryptocurrency
Photo by Maxim Hopman on Unsplash

What is the most important rule to remember when investing in any asset?

If you're just starting out in cryptocurrency investing, you might not be aware of this one simple rule.

Even if you've been holding Bitcoin or another crypto asset for a while, you might not be aware of this rule.

But once I break it down for you, it'll all make sense.

The most important rule to remember when investing in any asset, including cryptocurrencies and stocks, is this:

Profits should be taken and fled.

Isn't it easy to understand?

Duh! You aren't investing in cryptocurrencies to make a loss.

Instead, you're in the cryptocurrency trading game to make money. And hopefully, that profit is substantial enough to keep your roof over your head, food on the table, or, at the very least, give you some extra spending money.

However, many new investors overlook this rule.

They lose sight of the reason they are investing in cryptocurrencies in the first place.

But why do cryptocurrency investors disregard this rule?

They become greedy when they see the price of a cryptocurrency skyrocket up the cryptocurrency charts. They let their emotions take precedence over logic.

They want to ride the wave all the way to the top. And keep riding those magnificent waves, believing that the market will take them even further.

However, cryptocurrency market prices are extremely volatile.

Of course, there are ups and downs, and the wave can sometimes come crashing down unexpectedly.

It's happened before, and we've seen it many times. For example, in December 2021, the market price of Bitcoin plummeted by 20% in a matter of hours from its all-time high in November.

It's to be expected with cryptocurrencies, though. Because the market is open 24 hours a day, seven days a week, It's difficult to keep up with the crypto markets, and when they crash, investors can lose hundreds of thousands or millions of dollars in a matter of seconds.

As a result, you must be ready to withdraw your profits from each crypto trade you make.

I don't care if you plan to keep your Bitcoin or cryptocurrency for the long haul or if you just want to make a quick buck on your trades.

This one simple rule must always be in the back of your mind.

And knowing your exit strategy is the best way to prepare.

What Is a Crypto Exit Strategy and How Does It Work?

You must know when to exit your position before you enter any trade.

In the end, how much money do you hope to make from the trade?

The money you want to make—your profit—could be a percentage of your initial investment or a specific dollar amount.

For example, if you want to make a 5% return on a $10,000 Bitcoin position (roughly 0.21185363 BTC at today's price), you'll need to exit when your BTC trade is equal to or greater than $10,500.

You'll convert your BTC to USD, another fiat currency, or a stable coin like Tether, US Dollar Coin (USDC), or Gemini US Dollar Coin when you sell it (GUSD).

What's more, you don't have to deposit your profits in your bank account with this strategy. At least not right away.

The majority of centralized crypto exchanges, such as Coinbase and Binance, allow you to store fiat currencies or stable coins in your trading account.

I advise you to keep your profits on the exchange for a short period of time before transferring them to your bank account. Depending on the amount and volume you're trading, say once a week or once a month.

What Should You Do If You Want to Be a HODLer?

Is it better to HODL or not to HODL?

Isn't that what you're trying to ask?

By the way, HODL stands for "holding" on the internet. I'm guessing a die-hard Bitcoin supporter made a mistake. In the cryptocurrency community, that typo has become legendary.

Original Bitcointalk post, as seen on a screenshot.

So, here's the deal.

Those who own bitcoin or other cryptocurrencies should continue to profit.

Profiting, on the other hand, maybe less common.

For example, if you decide to keep your cryptocurrency asset because you believe its value will double, triple, or even quadruple in the coming years, you should still shave off a small percentage of your profits on a regular basis.

As the holder, you have complete control over how much and how often you use it.

This strategy is advantageous because your returns will be realized as you transfer smaller amounts to your bank account.

But what if you don't want to cash in on your earnings?

Bonus Strategy for Crypto Investors Who Know What They're Doing

Another option is to use the following strategy:

By swapping your position into a stable coin, you can "freeze" your crypto assets. And you'd do it if you think your cryptocurrency's market price will fall soon.

This protects your crypto portfolio by ensuring that you don't lose your initial investment or profits.

Because let's face it, nothing in life is guaranteed. In the crypto markets, nothing is guaranteed either.

Bitcoin may become worthless—just bits and bytes on a screen—at some point.

Or perhaps you were enthralled by a new gleaming token or coin, put a significant amount of money into it, and saw your profits grow.

But then, seemingly out of nowhere, the price dropped and never recovered.

And if the crypto coin or token recovers—i.e., the price rises—you'll be more than willing to transfer your stable coin "freeze" funds back into that crypto. But if you do so, make sure you do it before you leave your current position.

You might even make a little more money if you do it this way.

Here's an example of how that could pay off:

When you exit and freeze your funds, BTC is worth up to $65,000. (i.e. stable coin)

The price of bitcoin falls to $42,000 before rising again.

When the price of BTC rises to $50,000, you buy back in.

If you put this strategy into practice, you'll have made an extra $15,000 in profits ($65,000 exit minus $50,000 buyback) that you wouldn't have made if you just kept your Bitcoin.

Why is that?

Because you purchased your cryptocurrency—the one you believed in—at a lower price than when you sold it.

That's why, even if you plan to hold crypto for the long term, you should take your profits and run.

And as a result, you'll live a happier, less stressful life.


The information in this post is for educational purposes only and does not represent financial advice. Never put money into something you can't afford to lose. Make your own analysis.


About the author

Lora Lime

Writer and a Philosopher

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