With the crypto market hitting new all time highs many investors are shifting from “Is now a good time to buy crypto?” to “Is now the time to sell? Should I hold for potential further gains? Or is it wiser to diversify into other assets?”
The answer is a little more complicated than you might think.
Having a clear exit strategy is as crucial as the decision to invest. While buying crypto often sparks excitement, the process of selling requires careful planning to maximize profits and minimize risks.
Without a well-thought-out plan, emotions like greed, fear of missing out (FOMO), or fear, uncertainty, and doubt (FUD) can cloud judgment, leading to impulsive decisions that may hurt your long-term financial goals.
Read on to learn how seasoned investors set their goals and plan their crypto exits to lock in profits, protect against losses, and reposition their portfolios.
Setting Your Goals and Boundaries
Defining your investment goals for cryptocurrencies is no different than any other investment. Ideally, it should happen before even setting up your first crypto wallet.
Are you aiming for short-term gains to capitalize on market highs, or do you envision long-term growth as part of your financial strategy?
Understanding your primary goal will shape your exit strategy.
For example, if you’re saving for something specific, like a home down payment, it’s smart to decide how much profit you need and sell when you reach that goal.
On the other hand, if you’re aiming to build wealth over many years, you might sell just a part of your crypto and leave the rest to grow in value over time.
Equally important is understanding your risk tolerance. How much loss can you afford to endure if the market turns against you?
Investors with a low tolerance for risk may choose to lock in profits earlier, while those with a higher tolerance might be comfortable holding through corrections.
Timing the Market: When Should I Sell My Crypto?
Deciding when to sell your crypto can be tricky, especially in a market fueled by emotions.
Fear of missing out (FOMO) can tempt you to hold on too long, hoping for even higher prices. On the flip side, fear, uncertainty, and doubt (FUD) can push you to sell in panic during market dips.
<div fs-richtext-component="info-box" class="info-box protip"><div class="flex-info-card"><img src="https://assets-global.website-files.com/65098a145ece52db42b9c274/650c6f4b151815fb0be48cec_Lightning.svg" loading="lazy" width="64" height="64" alt="" class="icon-info-box"><div fs-richtext-component="info-box-text" class="info-box-content"><p class="color-neutral-800">Recognizing emotional triggers and staying disciplined is key to making rational decisions. A clear plan helps you stick to your goals rather than reacting impulsively.</p></div></div></div>
Some professional traders use technical indicators to spot potential selling opportunities. This method involves identifying patterns, such as overbought conditions or resistance levels, which might indicate that the market is nearing a peak.
The relative strength index (RSI), for example, measures the momentum of price movements. An RSI above 70 typically indicates that the asset is overbought and may be due for a price correction.
Resistance occurs when a cryptocurrency repeatedly fails to break through a certain price level. This can indicate strong selling pressure at that price. So if your crypto approaches a well-established resistance level, it might be a good time to sell, especially if you notice declining momentum.
Fundamental changes, such as new regulations or updates to a crypto project, can also influence your decision to sell, as these factors may impact the asset’s long-term value.
We’ve already seen many such cases in the past. For example, China’s repeated crackdowns on crypto activities have historically caused significant market dips.
On the positive side, a government might introduce clear, supportive regulations, encouraging institutional investment and boosting the value of specific cryptocurrencies.
There is no one-size-fits-all approach here. A casual investor might find it difficult to recognize important market signals and a seasoned investor might see signs where there are none.
It really depends on your goals, your boundaries and your risk tolerance.
To get started, here’s a list of the most common reasons to sell.
- You’ve reached your investment goals.
- You think the current market has peaked.
- You no longer believe in the project.
- You’re worried about losing your investment.
- A fundamental change, like new regulations or project setbacks, negatively impacts the asset's potential.
- You need funds for personal expenses or other investments.
- The market sentiment shifts dramatically, increasing risk or uncertainty.
- Diversification becomes necessary to reduce your overall exposure to crypto.
- You want to realize a loss to optimize your taxes (it’s called tax loss harvesting).
Tax Considerations in Your Crypto Exit Strategy
Crypto taxes play a major role in determining how much of your crypto profits you actually get to keep. Understanding the tax implications of selling your cryptocurrency is an important effective exit strategy while minimizing your tax burden.
Capital Gains Taxes
When you sell cryptocurrency for a profit, it is treated as a disposal for tax purposes, and any gains are subject to Capital Gains Tax (CGT). Here's how it works:
Annual CGT Allowance
Each individual in the UK has an annual tax-free CGT allowance (6,000£ for the 2023/24 tax year and reducing to 3,000£ in 2024/25). Only gains above this threshold are taxable.
Capital Gains Tax Rates
The rate you pay depends on your income:
- Basic Rate Taxpayers (income up to 50,270£): Gains above the annual allowance are taxed at 10%.
- Higher/Additional Rate Taxpayers (income over 50,270£): Gains are taxed at 20%.
You can find more info here: Crypto tax rates
Pooling Rules
The UK uses a share pooling system to calculate gains. This means all crypto purchases of the same type (e.g., Bitcoin) are averaged to determine the cost basis for sales, simplifying the calculation but requiring detailed record-keeping.
Accurate transaction tracking is essential for proper tax reporting. This includes purchase prices, dates, and sale amounts. Without detailed records, calculating your gains and losses accurately can become a headache, potentially leading to overpayment or penalties.
<div fs-richtext-component="info-box" class="info-box protip"><div class="flex-info-card"><img src="https://assets-global.website-files.com/65098a145ece52db42b9c274/650c6f4b151815fb0be48cec_Lightning.svg" loading="lazy" width="64" height="64" alt="" class="icon-info-box"><div fs-richtext-component="info-box-text" class="info-box-content"><p class="color-neutral-800">Crypto taxes are kinda our thing. Be sure to read our expert guides to learn more about crypto taxation and how to lower your crypto taxes.</p></div></div></div>
Tax-Loss Harvesting Opportunities
In addition to managing gains, tax-loss harvesting can help reduce your tax burden. If you sell a cryptocurrency at a loss, you can use that loss to offset taxable gains from other investments, reducing your overall tax liability.
Example: If you have 5,000£ in taxable crypto gains but 2,000£ in realized losses, your taxable gain would be reduced to 3,000£.
This strategy works particularly well during market downturns, allowing you to turn losses into tax advantages.
<div fs-richtext-component="info-box" class="info-box protip"><div class="flex-info-card"><img src="https://assets-global.website-files.com/65098a145ece52db42b9c274/650c6f4b151815fb0be48cec_Lightning.svg" loading="lazy" width="64" height="64" alt="" class="icon-info-box"><div fs-richtext-component="info-box-text" class="info-box-content"><p class="color-neutral-800">Identify tax loss harvesting opportunities with Blockpit’s Crypto Tax Optimizer or learn more about it in our guide: How to use crypto losses to lower your taxes.</p></div></div></div>
Strategies for Selling Your Crypto
So you’re ready to exit your position? Whether you’re looking to turn your SOL into EUR or park your profits in a stable coin of your choice, there are a few approaches you can consider. Here are four common ones:
<figure class="block-table">
<table>
<tr>
<th>Strategy</th>
<th>Description</th>
</tr>
<tr>
<td>Lump-Sum Sale</td>
<td>Selling everything at once</td>
</tr>
<tr>
<td>Dollar-Cost Averaging Out</td>
<td>Selling small increments over time</td>
</tr>
<tr>
<td>Partial Exit</td>
<td>Selling only a portion and keeping the rest</td>
</tr>
<tr>
<td>Moon Bag</td>
<td>Selling the majority but keeping a small part of your position “just in case”</td>
</tr>
<tr>
<td>HODL</td>
<td>Not selling at all</td>
</tr>
</table>
</figure>
Lump-Sum Sale
Selling all your crypto at once can be a simple and decisive way to exit the market. This strategy works well if you’ve reached your financial goals or need immediate access to the funds.
Benefits:
It’s straightforward and eliminates the stress of timing the market further.
Risks:
You might miss out on future gains if the market continues to rise after your sale.
Dollar-Cost Averaging Out (DCA)
This strategy involves selling your crypto in smaller increments over a set period, regardless of market conditions.
Benefits:
It reduces the risk of selling everything at a suboptimal time by averaging out your selling price.
Risks:
If the market continues to rise after your initial sales, you may end up selling portions of your holdings at lower prices than if you had waited and sold in a lump sum. Of course, the same risk applies to the market falling.
Additionally, multiple smaller sales may result in higher transaction fees on exchanges, cutting into your overall profits.
Example Scenarios: If the market is volatile or you’re unsure about the peak, DCA can help you lock in profits gradually. For instance, you might sell 10% of your holdings every week over two months.
Partial Exit
This approach involves selling a portion of your holdings to secure some profits while keeping the rest invested.
Benefits:
You balance securing gains with the potential for future growth.
Risks:
If the market continues to rise after you sell, the portion you exited might miss out on significant profit. On the other hand, if prices fall sharply, the value of your remaining investment could drop significantly.
Example:
You could sell half of your holdings when the market hits your target price and hold onto the remaining half for potential upside.
MOON BAG: The "Just in Case" Strategy
The Moon Bag strategy involves keeping a small portion of your crypto holdings—typically around 5%—even after selling the majority of your position. This strategy is designed for those who want to secure profits while maintaining a foothold in case the price skyrockets in the future.
Benefits:
Since you’ve already sold most of your position and secured profits, the Moon Bag represents minimal risk to your overall financial strategy and alleviates the fear of missing out (FOMO), as you’ll still have “skin in the game” no matter what happens.
Risks:
The held portion may become worthless if the project fails or loses relevance.
HODL for the Long-Term
It might seem oxymoronic, but sometimes the best crypto exit strategy is not selling at all. Understanding that markets often go through phases of growth, correction, and recovery can help you stay calm during short-term volatility.
Benefits:
If the project is strong, adoption is growing, and you’re investing for the long term, holding can help you benefit from compounding growth.
Risks:
The market can be volatile and recovery after a market slump can take years, if it happens at all. Keeping your capital tied up in crypto also means you might miss out on other investment opportunities with potentially higher or more stable returns.
Proof of Funds
Proof of funds (POF) has been a source of frustration for many crypto investors over the past years, as more and more crypto exchanges have come under scrutiny of financial regulators and anti money laundering (AML) restrictions.
Proof of funds is documentation showing that your cryptocurrency profits or holdings are legitimate and were acquired legally. This is often required when:
- Transferring large sums to your bank account.
- Applying for loans or mortgages using crypto-derived funds.
- Complying with anti-money laundering (AML) regulations in your country.
To prepare proof of funds, maintain detailed records of your crypto transactions, including purchase prices, sale amounts, and timestamps. Use our free crypto portfolio tracker to create a detailed transaction overview.
Save official statements from exchanges showing deposits, trades, and withdrawals.
For non-custodial wallets, provide blockchain transaction IDs (TXIDs) to verify transfers.
Generate tax reports using our crypto tax calculator to demonstrate gains and compliance.
Additionally, keep bank documentation of fiat deposits used to buy crypto or previous withdrawals from exchanges to ensure a clear and traceable financial trail.
Tools and Resources to Assist Your Exit Strategy
There are some really helpful tools out there that can help you make informed choices, manage taxes, and maximize your returns.
We would know, because we’ve built them.
Blockpit combines three key systems to ensure you can make decisions with confidence.
Portfolio Tracker
Our free portfolio tracker offers a clear view of your portfolio’s value across wallets, exchanges and blockchains. With more than 300,000 supported assets you’ll have access to insights about your holdings in real-time, identify which assets to sell or hold, and monitor your progress toward your investment goals.
👉 Explore the Crypto Portfolio Tracker
Tax Optimizer and Sales Simulator
Our unique crypto tax optimization feature highlights actionable tax-saving opportunities for tax-loss harvesting and insights based on specific tax categories. Our industry-first crypto sales simulator lets you explore how any transaction or sale will affect your taxes.
👉 Explore Crypto Tax Optimizer
Crypto Tax Calculator
Our country-specific crypto tax calculator automatically calculates capital gains, losses, and taxable events based on your transaction history. Export your crypto tax report and ready-to-file crypto tax forms with the click of a button.
👉 Explore the Crypto Tax Calculator
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