With cryptocurrencies like Bitcoin (BTC) rising exponentially in value, crypto investors will benefit from having a backup plan and thinking about what to do with their cryptocurrency earnings. Wise investors know they should not hold on to cryptocurrencies for too long at the risk of a big correction wiping out their gains.
Therefore, it’s always good to have a solid plan about what one will do after a big crypto win. It’s tempting to spend money on a car or some other luxury purchase, which might be justifiable to a certain extent. However, it’s also important to remember that these assets (cars, luxury bags, clothing, etc.) tend to depreciate over time.
Instead of spending all your earnings on depreciating assets, consider reinvesting your cryptocurrency earnings in other business and investment opportunities. After scoring a big crypto win, a little bit of foresight and planning will help one take crypto profits and reinvest them to see an even more significant return in the future.
Knowing when to enter and leave markets to maximize profits and cut losses is a well-kept trick in the book of successful crypto trading. Given the uncertainty in the market, a trader’s decisions can significantly affect how much profit they get (or how much they lose).
Bitcoin, for example, has gone from as low as $3967 to as high as $19,901 in just a matter of months. Altcoins follow along as Bitcoin goes higher, allowing investors to see huge returns. However, it’s important to know when to take profits.
Some traders set themselves up for the loss by being greedy and hoping for another 10x increase. Don’t be like them — have a crypto profit-taking strategy and look for wise reinvestment options for when the bull run ends. As markets go, after a bull run, a bear market will likely follow sooner or later.
How do you take profits in crypto and reinvest?
So, when should you take profits on crypto? It’s tricky to know exactly when is a good time to take profits, as it often involves solid planning and discipline. It’s a good problem to have because it means you’ve made profits. However, it can also be difficult, especially with no clear goal about what to do with the money you made.
Taking profits is tricky. You’re essentially asking: Is this profit enough or do I want more? Categorically, of course, more would always be better. But, when it comes to trading, knowing when to halt is part of being smart and avoiding losses. Furthermore, knowing how to invest crypto profits in lucrative channels also requires research and keen decision-making skills.
To know when to take profits, ask yourself the following questions:
What was my reason for buying this coin?
Unlike stocks, which represent something more concrete, a cryptocurrency’s value depends on how many people say it’s valuable. Stock investors often invest based on a company’s valuation or technical analysis. With crypto, it’s a little different because it’s much like investing in the future of a community that believes a certain cryptocurrency is indeed valuable.
Ideally, before buying a coin, one should have a more substantial reason other than just buying into the hype or thrill of it. If, for example, you bought Bitcoin because you believe it’s a good long-term investment, then maybe you can stick it out depending on market conditions.
You can take profits, for example, if the outlook for an impending bear market does not sit well with you. Maybe you’d like to invest it somewhere else and re-enter the market at a more favorable time? That’s acceptable too.
However, if you’ve realized that you purchased a fancy new coin on a whim because it had a cool name or it was popular at the time, then maybe it’s time to rethink your investment strategy. If you don’t see any real long-term future or value in it but have made a significant profit now, you can consider taking your profits and reinvesting it somewhere else.
What outcome do I want?
Everyone wants to get money out of a trade. But, then again, when thinking about taking profits, the question is “how much is enough?” In terms of outcome, are you willing to risk it all and perhaps suffer a loss because you believe you’ll regain whatever you lost tenfold?
It isn’t easy to be so sure about crypto because you generally don’t know how the coin will behave. You could sell and see the price keep going up, for example, and regret selling so soon. But, then again, it’s really hard to tell because crypto prices can generally go up or down regardless of historical data.
So, what’s a trader to do? Most of the time, the key is focusing on the percentage of profits you’ve already made. People have different preferences depending on how much risk they’re willing to take. However, most traders target at least 50% before they take profits.
That being said, you can target 100% profits too before you decide to take. You can even target higher percentages. It really depends on how much risk you’re comfortable dealing with. It can be tempting to see where your investment takes you if, for example, it reaches 100% (or even way beyond).
Know, however, that this is shaky territory and may put your investment at risk. This is alright as long as you can deal with extreme volatility. Otherwise, you should have a clear percentage in mind to signal when you’re going to take your profits off the table.
Is there a better opportunity?
Investment is about finding the right opportunities at the right time. If you find yourself something better than what you’re currently invested in, it might be a good time to take your crypto profits.
Ask yourself if you’re willing to let go of your current investment in favor of rechanneling it towards something else. But, do remember the amount of profit you lose by going for option one and letting go of option two which involves the “opportunity cost.”
It could also provide insight into another characteristic that makes a cryptocurrency risky to employ in real-world transactions: crypto’s volatility. Consider that you will be relinquishing your current crypto’s potential profits and ask yourself if you’re willing to take the risk.
This goes for investors with multiple investments as well. If you decide that you’d rather have the time and money you spent on cryptocurrency invested in another opportunity (new or current), you’ll have to weigh the pros and cons as well.
Best ways to take profits in crypto and reinvest
Should you invest crypto profits after you’ve taken them off the table? Ideally, yes, if your objective is to continue growing your earnings. There are many options you can consider if you’ve decided to take crypto profits.
Spend a part of your earnings then reinvest the rest
One option is to use a small part of your crypto earnings before reinvesting the rest. By doing so, you can ensure that you can eventually cash out and earn a hundred percent of your profits.
Essentially, you’re protecting yourself from future losses by ensuring that your seed funds are not lost. Some investors wait for their profits to reach the amount they deposited as their seed capital to prevent future losses while providing a way to continue investing.
You can also reinvest for the next bull run after taking out some of your gains before reinvesting.
Invest in mining
Putting one’s profits from trading to mining is another profitable option if you want to reinvest your crypto earnings. If you’re knowledgeable about technology and what it takes to mine Bitcoin efficiently, this is a good option for you.
You can diversify your crypto earnings by carrying out both mining and trading, thereby opening up multiple sources of crypto-based income. You can use your earnings from mining as capital to actively trade. In turn, you can also use profits from trading to upgrade mining equipment and pay for related costs.
Regardless of the market being slow or stagnant, this strategy allows you to still earn money by offsetting losses from one of the other revenue streams. To pull off this strategy, however, you will need prior experience in trading as well as mining cryptocurrency.
Invest in new coins
One strategy that expert traders use is selecting extremely high risk (and therefore also high reward) coins and initial coin offerings (ICOs) to earn significant gains. Some traders use this tactic to keep significant portions of their investment portfolios in principal coins like BTC, Ether (ETH) and Litecoin (LTC).
Once they gain significantly and close an investment, they then buy it back at a lower price. Afterwhich, a portion of the profit can be used to fund intense speculation (high-risk, high-reward transactions) on innovative ICOs and coins.
For instance, if you traded 5 BTC and were able to convert it to 8 BTC, you can invest the 3 BTC you gained in a new coin or project that could provide returns as much as 100x.
If the project is a success, it will make you an early investor, and you will have gained rewards for early adoption. If not, then you only risked a portion of your crypto and still have your earnings via principal coins.
Invest in a rental property
Investing your crypto earnings in rental properties is another lucrative way to earn income from your trading profits. With the right property, you can earn passive income and enjoy the fruits of your labor from crypto trading for a long time. You can even save part of your earnings from your rental property to reinvest back in crypto holdings when the next bull run comes along.
If you’ve never invested in real estate, it might be intimidating at first, but with the right advisors and enough research, it’s one of the most stable and profitable investments you can spend your hard-earn crypto earnings on.
Buy dividend stocks
Dividend stocks are also a great investment opportunity. You might find that real estate rentals are not for you or maybe you want to diversify your investments to maximize growth from your crypto earnings.
Dividend stocks pay investors from their earnings — some examples of companies that pay their investors every few months are tech giants Apple and Microsoft. With a properly set up dividend plan, investors can receive income from their stock investments every month.
Put your profits away
Lastly, traders also take profits to put away in the form of coins to keep their capital away from the risks associated with daily trading. If, for example, you trade Bitcoin and are able to turn 2 BTC into 2.4 BTC, you can send the 0.4 BTC to a cold storage wallet, or an offline wallet. The amount can be held as a long position together with all other earnings you set aside.
However, note that you cannot quickly access these coins if you suddenly want to invest them the moment the market begins to enter bull season again. To hedge against this, you can also take short positions when the market is bearish to offset the potential losses that your banked coins might take.
Another option is holding cash, which may not be as rewarding as the other options but is still a viable option. You can deposit your crypto gains in a savings account for future investment opportunities or wait to buy during the next dip in the market.
Other ways to utilize crypto profits
While not necessarily reinvestment options, here are a few more smart ways to ensure that your crypto earnings are put to good use:
HODL
Fun fact: The term HODL was coined when someone misspelled “hold” in a crypto forum, and some people thought it meant “hold on for dear life.” Now, it has come to mean both of those terms in crypto. When it comes to taking profits vs. holding crypto, both are viable options depending on your portfolio and objective.
Having said that, HODL is great if you have a huge portfolio that doesn’t need to be sold anytime in the near future. You can, instead, stake your holdings to grow the amount of money you have, especially if your chosen crypto is relatively solid and rewarding, like Ether, for example.
Ethereum will soon move to a PoS model, and investors are anticipating a better performance during upcoming bear markets because crypto holders can now stake their ETH holdings. Holding on to crypto during a bear market can be a viable option because you’ll essentially be carrying the same bag, even if your investment shrinks in terms of fiat.
Donate
Donating crypto is a great way to support a charity, church, food bank or cause that you believe in. Organizations like The Giving Block specialize in facilitating crypto donations to nonprofit organizations.
Once you donate crypto, it can also be tax-deductible and can help offset your cryptocurrency gains. Donating crypto is a great way to help others while reducing your tax burdens. When you donate crypto to nonprofits, you will receive a tax deduction for the value of the crypto instead of paying capital gains tax.
Consult a tax accountant
One thing that you should absolutely do after earning a huge amount from crypto is pay your taxes. In the United States, the IRS has sent letters to over 10,000 crypto holders warning them to pay their taxes from crypto earnings or make corrections.
Avoiding paying your taxes could get you into trouble and you’ll end up losing even more money from penalties. Taxpayers could also be subjected to criminal prosecution for failure to pay their crypto taxes.
If you want to know more about how cryptocurrency is taxed, read our guide here.
Pay off your current bills
Spending your profits on something new and shiny may be tempting. But, before you do that, make sure to pay off any debt first. There’s nothing wrong with enjoying your profits by buying what you want. However, be financially wise by paying off credit card dues and other bills before you splurge on something.
This way, you have a clearer picture of exactly how much you have in excess after paying off everything. You can then set aside a portion to reinvest and a portion to spend however you wish.
Plus, sitting on your debts when you have enough money to pay them off is just like giving banks free money. By not paying on time, they’re free to penalize you and charge you with late fees, which you’ll eventually have to pay later on.
How to take profits from crypto without selling
How do you secure profits in crypto? There are many ways and the most common method used to make a profit from crypto is to withdraw from trading at the first sign of trouble.
There are other options to take profits in crypto without selling, in case that’s a route you want to take instead:
P2P lending
If you are looking for a relatively secure way to invest your money and earn a steady return, peer-to-peer (P2P) lending is a great option. This is particularly applicable if you have a large amount of crypto stored in your wallet.
Crypto-based P2P lending is largely based on Ethereum because it relies heavily on smart contracts. With P2P lending, you can securely loan your crypto with an assured return of around 10% to 20%.
ETH lending is allowed on platforms like Maker, where people can get a secure source of capital (in the case of developers and business owners) without having to sell their crypto assets.
Arbitrage
Because the crypto market is completely independent of external laws and control, price swings between exchanges are relatively common. Crypto holders looking for a way to make an extra profit can take advantage of this via arbitrage.
Arbitrage in crypto is one of the most effective methods to make money out of price differences between different exchanges. First, select a currency you’re interested in and check out its prices on different exchanges.
You should see offers at a bargain price on some exchanges. Take it at a bargain and find another exchange where the same currency is traded at a higher value and sell it there. You will have made a profit solely on the price difference between the two. Price differences between discount and premium offers can run between 5% and 40%
Digital dividends and interest
There are prominent cryptocurrencies that pay dividends to their owners such as NEO, KuCoin and BTMX. Holders of these cryptos can earn substantial amounts of money as passive income just by having them in their portfolios. If you want more information, head to the article we made on crypto dividends
Additionally, certain crypto platforms such as StormGain offer interest on cryptocurrency that a user uses most often.
Direct your actions based on a plan
In the words of American entrepreneur William J. O’Neil, “The secret is to hop off the elevator on one of the floors on the way up and not ride it back down again.”
While O’Neil meant it for the stock market, the same principle can be applied to taking crypto profits, too. But, whether your strategy is to take profits off the table, let your winnings continue rising in the hopes of an even better return in the future, etc., it is important that you have a plan in place to direct your actions.
Asking yourself some or all of the questions listed above would be a good place to start when considering taking your crypto profits