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With the changing trajectory in the crypto market, investors and traders are torn between opinions as to when they should sell bitcoin and make the most gains.

However, in real life, sometimes the goal is not always to maximize your gains. It is also important to minimize regrets. According to Barry Ritholtz, a Bloomberg View columnist and founder of Ritholtz Wealth Management, many people who own bitcoin now sit on a huge financial windfall. In 2017, the world’s most popular cryptocurrency maintained a steady upward trend amid market challenges, with a major price correction last December. However, bitcoin has since bounced back, with some traders saying it has gone mainstream, while various analysts suggest even higher projections in 2018.

When is the Right Time to Sell Bitcoin?

Ritholtz says that through his money-management firm, he meets all kinds of people from long-term investors and real estate speculators to institutional traders and tech entrepreneurs. The former Chief Executive and director of equity research at FusionIQ, says that the big question for every investor or trader is when to sell Bitcoin. Against that backdrop, bitcoin owners are afraid to make any decision that could be financially disastrous in the end.

“It’s not just that they don’t know what to do; rather, they have no idea about how to approach the issue of when to sell,” says Ritholtz.

While he says he has no opinion on crypto valuations, Ritholtz offers a framework for the unfortunate bitcoin owners who want to know the best time to sell bitcoin. To drive his point home, he illustrates it with an edifying war story.

A Fitting Illustration

“During the mid-1990s, a good friend took a senior job at a tech startup that came with a good salary — and lots of stock. The company got taken over in late 1996 by Yahoo! Inc. The shares in the startup were replaced with Yahoo stock options that had a six-year vesting schedule, with 25 percent vesting after three years and the balance vesting monthly during the next three years.”

For traders at that time, those were exciting times. With tech stocks especially the dotcoms, soaring higher to double or triple digits in short periods. As the stocks kept going up and up, traders and investors thought that each sale was just a cause for regret, Ritholtz explains.

“My buddy’s stock options represented a great deal of wealth. Not merely fun money, but life-altering: pay off the mortgage and the car loans, pay for the kids’ colleges, fully fund retirement accounts, and still have lots left over. He could take any job he wanted for the rest of his life—or none at all…He was torn about what to do, and asked for help.”

Minimizing Regrets

Ritholtz advice to his friend was not based on the dotcom bubble, the valuation of Yahoo stock, or on anything market-related. Instead, he suggested utilizing a regret minimization framework. While each investment comes with a range of possible outcomes, Ritholtz wanted to focus on potential outliers at either end of the spectrum, which led to the following:

  • Scenario one: Hold and the stock tumbles from $300 to $30
  • Scenario two: Sell and the shares soar to $3000

If either of these scenarios happened to you, how would you feel? For Ritholtz’s friend, “it was an easy decision. If he sold some of his shares and the stock went higher, he still owned a healthy slug of options. The probability of the outcome wasn’t the issue; what really mattered was the potential future regret if he didn’t sell and the stock collapsed.”

A worst-case scenario is a situation in which you hold and then the market collapses. On the other hand, if you sell bitcoin and the value soars, you will be happy with your decision. Otherwise, there are paper multimillionaires or billionaires whose wealth has evaporated in such collapse.

If you are a bitcoin holder torn between selling and holding, you can employ a similar strategy, which is meant to minimize regret. Consider selling and the price goes up or holding and bitcoin price plunges.

Avoiding the Worst Outcome

Ritholtz asks, “Which is the outcome you most want to avoid?…If you are still paralyzed, there’s always the middle option: Sell enough—perhaps half—to become rich in reality and not just on paper; then let the other half ride. Doing this accomplishes several things: First, it locks in sufficient wealth to eliminate a lot of life’s money-related worries. Second, it still leaves you with upside if this is only early innings and cryptocurrencies keep rising. And, third, it protects you in case of a dot-com-like collapse.”

This could sound a bit obvious, but it is important to look at it in another dimension. As an investor, you should not always aim at maximizing your returns. Instead, at some point, you should balance your gains against the possibility of losses. With that strategy, you can minimize regrets.

Why should you sell?

In 2011, bitcoin worth $100 was equivalent to nearly $28 million today. Three years later, the same amount could give you bitcoin worth $5000 today. If you are among the lucky early investors, you might be thinking of selling your digital currency. The desire to sell bitcoin at a time when the value is at the peak creates a dilemma for people with thousands of dollars in their digital wallets. Should you sell some of your investment now or hold it to earn more in future? At the same time, you are worried about the possibility of a price crash that could erode all your wealth in less than a day. Cryptocurrency analysts recommend that you sell part of the investment, especially when you have pressing financial needs. You can do the same if you are risk-averse.

Not bad to sell part of your bitcoin investment

According to Josiah Hernandez, chief strategy officer of Coinsource, “If someone’s looking to pay the bills, it may be logical to take out, say, a month’s worth of necessities,” Hernandez spoke to the Business Insider. The crypto expert says that it’s in order to sell about 30 0r 50 percent of your bitcoin investment if you need urgent cash. However, it is advisable to “still keep at least half invested…that way they won’t be filled with regret years down the line should Bitcoin’s value continue to surge,” Hernandez advises.

On the same note, Linas Rajackas, an investment expert advises, “if you have low-risk tolerance, and your bitcoin exposure becomes significant, you might consider selling a part o get back your initial investment and keep the remaining amount of bitcoin without any risk.”

All the same, both experts concurred that if you have no plans of buying a new house or car, then it is wise to leave the investment untouched. Judging by the trends in the crypto market, bitcoin has soared in value with more than 1500 percent from where it was at the same time last year.

While other people brand bitcoin and cryptocurrency all sorts of names, loyal investors continue to stay with bitcoin for years, even amid market challenges. As Aaron Lasher, co-founder of Bread, a cryptocurrency company, says, “I would never advise anyone to sell all of their bitcoin…My target for bitcoin is really really high—I’m thinking $250,000 a coin within five years.”

Featured Image from bitcoin.com

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