According to CoinDesk, investment bank Citi recently said that the correlation between the cryptocurrency market and traditional equity markets is once again getting closer. With volatility rising across asset classes, Bitcoin is still sensitive to market fluctuations in equities and Ether has also shown high short-term volatility. Even though Bitcoin’s volatility is lower than its one-year average, the crypto market has experienced many ups and downs in the recent past due to widespread market uncertainty.
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As the cryptocurrency market becomes more volatile, how can you tell whether you should stick around or leave? GOBankingRates consulted experts to determine how one can know when it is time to sell their crypto.
Depending on the role of crypto in your portfolio
“If it’s a small, specified piece of your assets in stocks, bonds, cash and perhaps other alternative assets, you have room to weather ups and downs,” said Joey Isaacson, CEO of savings app Nook. Isaacson believes that knowing when to sell depends on the role of crypto in your diversified portfolio. If you’re investing for the next decade, you can handle some volatility. However, if you need the money in the next year or your position has grown, you may want to set a limit for when you can sell your crypto assets.
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Be careful with this price point
“A pre-determined exit plan prevents emotional decisions when the market rises or falls in the volatile crypto market,” Isaacson said. He recommended setting layered goals so you have goals to aim for. He suggested selling a portion of the position if the price rises 50% and setting a stop-loss or risk limit if it falls 30% from your entry or if your portfolio allocation becomes too large. This logic makes sense because if you are down 30%, you may want to consider moving before you lose even more money.
When it comes to portfolio allocation, Isaacson believes conservative investors can limit it to 1% to 3% of total assets, while more aggressive investors can go as high as 5% to 10%, depending on income stability and risk tolerance.
Set stop loss at 5% to 10% below your entry point
“A practical approach is to set a stop loss about 5% to 10% below your entry point for active trades,” said Yuri Berg, MBA and chief business development officer at FinchTrade. “As prices rise, adjust your stop losses upward based on technical levels such as moving averages or recent support zones.” Berg points out that stop losses are survival tools, not tips. He urged to decide the terms of sale before investing, whether for profit or to cut losses.
It depends on why you invest
Crypto expert and Steelwave founder Michelle DiRamondo said volatility is the tax you pay for getting into an emerging financial system early. He said, “If you understand what you have, believe in the underlying thesis and your time horizon is measured in cycles, not quarters, then you believe it.”
DiRamondo does not agree with the theory that you should wait for a certain selling price because he believes that defined conditions are more important. He recommended keeping an eye on liquidity, regulation and macro inflection points. This leads us to the next point.
depends on market conditions
According to Ankush Chaudhary, founder of Humanizer AI, random price points are less important than market conditions. He looks at adoption metrics, trading volume, and regulatory news before deciding whether to sell or hold a cryptocurrency asset.
Here are the market conditions that Chaudhary reviews before making decisions:
- A significant drop in volume is usually a red flag and a signal to sell.
- He may consider selling if significant regulations are implemented that could harm the property.
- Adoption is measured because more users on a crypto blockchain often leads to more practical applications.
Chaudhary said price alone doesn’t tell much, as if a digital asset is experiencing low usage, it may not be a good investment. However, if institutions are accumulating Bitcoin, it may make sense to buy more at any price. He uses Glassnode for on-chain data and CoinMarketCap for volume trends. He recommended reducing your position and selling crypto assets when two of the three factors worsen.
depends on your risk tolerance
Leo Fan, crypto expert and co-founder of Sisic, said that market volatility has always underlined the crypto cycle. “Mainstream tokens like Bitcoin or Ethereum reflect broader market cycles, especially those of US Wall Street, so they are less affected by short-term fluctuations and are generally better able to hold up over the long term,” he said. Fan warned that altcoins can be difficult to predict. However, he believes that the decision to sell depends on the personality and risk tolerance of the trader.
“A sensible strategy is to take partial profits, such as selling half or a third of your portfolio, while keeping the rest in use. This way, you lock in profits but still maintain risk if the market moves upward again,” Fan said.
You may want to consider selling now
“The time to sell is tomorrow,” Robert R. said Johnson, Ph.D., Chartered Financial Analyst (CFA), Chartered Alternative Investment Analyst (CAIA) and professor of finance at Creighton University. He believes that holding crypto assets is not a wise move and you should consider selling them immediately. Johnson said there is no point in investing in cryptocurrencies because there is no way to value them using basic financial instruments. He understands that speculators are attracted to crypto’s volatility, but he doesn’t view it as a traditional investment.
Johnson cited a Fortune report where Hargreaves London, the largest retail investment platform in the UK, advised clients not to invest in Bitcoin because they felt it had no intrinsic value. The report notes that although Bitcoin has delivered strong returns over the long term, it has also gone through several phases of significant drawdown and remains a highly volatile asset – posing far more risk than traditional investments such as stocks or bonds.
Investing in cryptocurrency assets is a polarizing topic and you will find a variety of reactions when it comes to deciding whether to buy or sell. As always, we recommend that you do your own research and only invest an amount you are comfortable with, as there are still many risks involved.
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This article originally appeared on GOBankingRates.com: How to Know When to Sell Your Crypto, According to Experts
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