When things are great like they currently are and the majority of your coins are flying high, it is easy to get swept away with all the euphoria and forget why you are here in the first place. To make that cheddar.
It’s all well and good that you are in it for the tech… but at the end of the day, the aim of the game is to make generational wealth. All those nice green candles and xxx% increases in your portfolio are just numbers on a screen until those profits are taken.
But what about “up only”? Yeah, unfortunately, that won’t always be the case. If you have just joined crypto in the past 2-3 months then you have joined at a very very good time but also don’t let those first impressions last a lifetime. It ain’t always this rosy.
This isn’t to scare you into selling all your coins because I still believe we have a long way to go yet, in this cycle and forever after.
Cryptocurrency markets are ruled by Bitcoin. That’s just how it is. Bitcoin dominance measures the value of all cryptocurrency and what percentage of that is in Bitcoin.
The current market cap at the time of reading is $1.7 billion. Bitcoin dominance is 61% of that whole total market, so roughly $1 trillion. Which is mental… just another 9x to go before we reach a total market cap of gold then.
The crypto market cycle is usually set off by the halving, now this shouldn’t be a specific time frame but it is usually 3-4 years or more specifically every 210,000 blocks. If you want to understand how Bitcoin works you can read our beginners guide HERE.
This is the total market cap chart as you can see on the righthand side of the y-axis show.
From the chart below you can see how quickly the market turned south.
In this chart, each candle represents 1 week. So from the top to the local bottom, around 88% of all crypto value was lost in around 1 year. This is long enough for you to be able to scale out of your investments but human greed is a powerful thing.
This is the wall street cheat sheet of market psychology. Which looks strangely similar to the chart above…
Market cycles are real believe me. They are real because people are inherently predictable. Fear and greed, two basic human instincts come in to play and they are predictable.
I say it all the time so forgive me for sounding like a broken record.
Be greedy when others are fearful and fearful when others are greedy.
This doesn’t mean buy stuff that is tanking. If the project is legit and you believe in it then the market will recover over a long enough period.
But how do you preserve those well-earned gains?
Well, it’s basically impossible to buy the bottom and sell the top although, we do try.
There will always be a better price you could have bought and always a better price you could have sold. Just don’t make it a habit of straying too far from these points if you can help it.
Before we get to profit-taking strategies I want to give my 2 satoshis worth, on where we are in the market. Whatever is about to come out of my mouth could be utter rubbish so please DYOR.
The first point I will make is I don’t have a clue… This could go on for a very long time. Bitcoin is the indicator for me and I have heard everything from $30,000 which we past months ago, to $300,000 by the end of the year.
Both arguments when I heard them sounded great. The fact of the matter is, I don’t know and anyone who tells you they do is lying.
When Bitcoin moved up in 2017 and then started to come back down, the smart money flooded into altcoins. This is because whilst everyone entering the space had pumped Bitcoin to all-time highs, a lot of smaller cryptocurrencies were being discovered.
Once someone had seen that there was more potential upside in these smaller cap coins profits and even new money flew into altcoins.
Taking in to account a regular market cycle, this could and I believe it will happen again to some extent. I don’t think that Bitcoin will crash as hard and fast as it did in previous cycles. I believe there are huge institutional investors waiting on the sidelines for any form of pull back and ready to pounce at the opportunity.
This could extend the bull market by a lot longer than the 1 year seen in 2017. Bitcoin also lifts the full crypto market cap and the constant news and word of mouth can send it into another rally very easily.
With it becoming more and more common knowledge, albeit still alien to 95% of the planet, accumulating impressive assets over the long term will make you an awful lot of money.
Think of the dawn of the internet and buying Apple, Microsoft or Google stock. This is a generational opportunity, so don’t wait too long and don’t lose it all on the way back down.
You could always just set it and not look at it for the next 10 years and if you have bought Bitcoin, Ethereum or Chainlink you would be fine… But you aren’t going to do that realistically.
That being said, having longterm bags that you dollar cost average into no matter what the price is a very very very good strategy for long term plays. Read our article on that HERE.
So how are you going to take profit without selling before the pump?
Very difficult but fundamentally it comes down to risk tolerance i.e. how much are you willing to win/lose, intelligence and keeping your emotions in check.
You must have a plan and hopefully, the following will give you some ideas on how and when to take profits to make a successful cryptocurrency exit strategy without losing those long term gains.
Price – What was your price target? Did you have one? Price can be a useful way of setting a target. The price per coin is okay, but I think the market cap (MC) is better.
Market cap = Price x supply of coins
If a coin hits a certain market cap, you want to look at the other projects that are near it in the rankings and think “Is this project of similar value and potential as its neighbours?” from this you can estimate if it is undervalued or overvalued.
If it is undervalued in your opinion, let it ride. If it is amongst the big boys in this space and you think it may have bitten off a little more than it can chew, think about selling a portion.
Percentage increase – Did you have a % increase target in mind? 100% price increases in this game are nothing. That might be something in the dinosaur markets but not in crypto. You can see 10X and 20X gains over a matter of weeks.
How do you stop yourself from taking profit too early but also stopping the greedy inner beast from taking control and making you hold all the way back down to your initial buy price?
Scale in and out of crypto always, “all-in” is gambling. Take portions of profits along the way and constantly assess your coins position in the overall rankings. If Doge is up there in the top 5, I think it might be punching…
How much did you want to make? Are you in this for the long haul? If so I think it is wise to always leave skin in the game. There are a few ways you can do this effectively.
Rules – There is an old trading rule which is if you are up over 100%, “take half and leave half”. This effectively creates a risk-free investment for the foreseeable.
A 2X or 100% increase means you can afford to take your initial investment out and let the rest ride. This is great when you are uncertain.
A rule a lot of the guys at blocmates use is what we call “the third rule”. As I said earlier, 200% or 3X is great but not uncommon. If you are in this situation you can use this rule as follows:
Reinvest ⅓ in another project that has potential
Take a third for yourself.
After all, we are here to make money or more Bitcoin.
Skimming – Another blocmates favourite. Skim small percentages of your profits and reinvest them in coins yet to pop. In a bull market, you can chase a lot of projects that have yet to explode and it can be a profitable strategy. Just be careful you are not skimming profits and using the profits to chase pumps. You will get destroyed.
Let winners ride – If you are a diehard Chainlink Marine like a lot of us are, you may believe in the project to the point where you don’t care what happens. At the end of the day, you know the project will be a winner even if the road is rocky along the way. Just don’t get blindsided and trapped in coins that are more of a cult than a world-changing project. I am not mentioning any names…
The next part we should charge you for… This is an elite level crypto play. Just kidding anyone could have figured this one out.
If you have used any yield farming protocols in the DeFi world (more on DeFi HERE), you will have seen the likes of YFI, Beefy Finance, Auto etc. You may have noticed there are stablecoins pools.
So what does that mean, aren’t stablecoins, like… Stable. Yes, they are stable, but the returns aren’t when using yield farming protocols.
Let’s have a look at Beefy Finance.
So you can use Beefy Finance to deposit stable coins like BUSD, USDT and USDC. What does that mean? Well, from your profits, you can stake them in these beefy vaults and earn around 0.2% a day! This is automatically compounded (which is the beauty of Beefy Finance), results in a return of around 100% a year.
So instead of putting your profits in your bank and being affected by the incoming negative interest rates, use a yield farming protocol to earn some great passive income.
We know it is great, but what is the catch? Well, the more people who join the pool the more the rewards of the pool have to be shared around. But, even if they come down, they will be a lot better than the 1% interest a year your bank gives you that doesn’t even cover inflation.
Synthetic assets – Again let’s head over to Beefy Finance.
These are synthetic assets, they hold the same price as their real-world asset. So MGOOGL is the same price as the Google share price. The beauty of this is the tech stock market cycle is not typically dependent on the crypto market. Meaning if the crypto market is to go down then these synthetic assets should (don’t take our word for it) continue to increase.
There are a lot of fundamentals that need to be taken into account when dealing with synthetic assets, but this may be another way of protecting yourself against a bear market in crypto.
Oh, and did you notice the APY in Beefy Finance? Yeah, you read that TSLA one right, 1320% annually… But again, the more people that join this vault the less the APY is.
Having a way out when you want to get out – All these techniques are all well and good but how do you withdraw your earnings if the big exchanges are constantly having brownouts and halting deposits and withdrawals.
So how do you get around this? AAX.com consistently keeps it’s lights on during busy times. This exchange has excellent liquidity and a very tight spread. If you are ever needing a reliable exchange during busy periods AAX is the place.
We highly recommend signing up and having this option available to you. To be honest, once you do you will see how great the user interface is and just start using it outright.
This is advice.
To summarise, we are still in the infancy of cryptocurrencies and selling everything you have for your local currency is not always the best thing to do. At the bare minimum, you want to be beating inflation or negative interest rates.
If you are using the profits to invest further into appreciating assets like a house, this is a good move. By now you will have realised that putting everything in cash is stupid. The tokenomics of cash would make it one of the worst projects in the world. Constant printing leads to a decreased value against everything else.
Best of luck, you may need it.
Before you go, we have a Patreon page which is the price of a pint per month. It lets you know what we are buying and selling and when. It also has full access to my portfolio.
You can join HERE
If you liked this article and want to learn more, we offer one-to-one support online to help you set up and get involved in the cryptocurrency space. Hit the ‘Book Today’ at the top of this page to get started.
Alternatively, you can follow our group on Telegram for our side thoughts on the market. – @blocmates on Telegram.