With the bull market raging on and a potential top arising, you might wonder how to best tackle the situation. Selling at the top would be ideal but knowing how to reinvest crypto profits, later on, is what truly creates generational wealth.

In this article we discuss:

  • What could potentially trigger the next bear market
  • How to sell your crypto in the most efficient way possible
  • How to best re-enter the market during a bear market

This article does not delve into other investment opportunities outside of the realm of crypto. We believe that the market still has a lot of room to grow and with its many new subsectors, will continue to remain relevant. Therefore, if you wish to know how to reinvest crypto profits in the best way possible, make sure you read on.

History doesn’t repeat, but it often rhymes

When looking at previous bullish market cycles in the Bitcoin market, we can already start to see many differences. While most technical analysis focuses on the strong possibility of repeating growth conditions of the prior 4-year cycles, it is now evident that we are headed to an extended bull market.

Dan Held has previously talked about this possibility in his excellent piece “The Bitcoin Supercycle”. In short, Bitcoin continues to grow at a steady pace, with smaller (time and size-wise) dips, until all supply is drained from exchanges, at which time the price will grow rapidly and exponentially.

This process may take longer than expected, and there is still a lot of room for another market correction, especially if we go up too fast. Rapid growth leads to an even faster crash, and this is where you want to sit on the sidelines, in stablecoins, waiting to buy the dip.

So when can we expect the peak’s blow-off to occur? Due to the uncertainty of this extended cycle, we can’t be sure, but let’s have a look at some bearing indicators that could act as catalysts.

When bear market?

At this point, we are carefully looking at four scenarios that could cause the start of the next bear market:

  • US banning access to exchanges – Due to the economic uncertainty and high inflation numbers in the US, we may see the country banning access to FIAT onramps (exchanges). If this method doesn’t work and users continue to buy crypto with FIAT, there is a high chance we might see new laws for the taxation of unrealized capital gains. Both of these issues, once announced to the public, could lead to a large correction.
  • MtGox users finally receive their BTC – More than 20.000 users of the now-defunct exchange will receive up to 90% compensation for their lost funds. The amount of distributed BTC will be massive (141686+ coins) and due to their inflated value, we could see enormous buying pressure that could trigger a collapse in case of an overleveraged supermajority.
  • Large whales start selling their positions – In case of a supply shock, the price of Bitcoin will grow rapidly up to a point where long-term large hodlers start to sell their position. The exact price, if this would happen, cannot be predicted but you can remain updated by tracking on-chain analytics and coin movement in user wallets. The best source for this is tweets and podcast appearances from Will Clemente and Willy Woo.
  • S2F target is hitPlan B, the creator of the S2F and S2FX model is followed by more than 1,5 million BTC investors. Once the price target of his models is hit, we could see enormous selling pressure. It is worth checking out both his articles on the models described here and preparing accordingly.

Creating a selling strategy

Creating a selling strategy early on will help you avoid mental struggle as the market continues to grow. Expectations change, and so do the latest market developments, but this shouldn’t stop you from setting concrete goals and sticking to them.

It really is that simple. You will need to align your goals with your expectations and turn them into a selling strategy that will be executed no matter how you feel emotionally.

The best way to go about this is to start by setting a price target for your coins. For example, you might hold BTC that you hopefully wish to sell at a price of, say $250.000 per coin. It is very important to set such a concrete target to proceed.

Now, based on the target you set, you will start to “scale-out” of your position as you are approaching it. For every person the specifics might differ but, in short, this means that you will start selling part of your holdings as you are approaching your target. This way you can ride the wave until exhaustion.

  • Start by selling a part of your position when you have reached 70% of your target ($185.000 per coin).
  • Sell again when you reach 80% of your target ($200.000 per coin).
  • Continue selling until (hopefully) your target is met but make sure you still have BTC holdings in case the price continues to climb.
  • If the climb continues, keep on selling at 10% increments until you manage to reach your target exit price as the average of your sales.
  • If a large-scale correction happens before your target is met, at least you sold on the way up and are now able to scale back in.

The whole point of this strategy is to prevent you from selling everything at once. Instead, you sell partial amounts of your position when price milestones are achieved and are able to better time the top.

When and how to reinvest crypto profits

If you did everything correctly, you should now have a sizeable amount of your holdings into stablecoins, sitting on the sidelines. While the market descends, it will be very tempting to re-enter quickly. Resist the urge to do so and, once again, set a bottom price that you would be happy to re-enter. Until you start to approach this target, it might be a good idea to stake your stablecoins to earn additional passive income that you can then use to buy back lower.

Following the strategy above, you can scale back into your position as your target is coming close. Based on previous bear markets, this might require a period of up to one year, therefore don’t be in a hurry.

Larger portfolios might benefit more from farming/staking their cryptocurrencies during a bull market to compound the size of their portfolio without making any trades that could risk their position. They can then swap the earned interest into stablecoins and only use this amount to buy back in at lower points. This removes a massive amount of risk for those who measure their portfolio in BTC value.

Note: If the market continues to go up after you sell your position, resist the urge to re-enter too fast and wait for a strong confirmation towards the upside. Emotional intelligence is very important during this stage, and you might even be better off not checking charts for a while.

What if you prefer to HODL?

Most people that chose to HODL during the latest market downturn still remember their net worth melting like an ice cube. Bitcoin corrected nearly 84% in 2018 and most investors that chose to hold onto their coins ended up selling at low levels. The same happened in the cycle before that.

That said, holding onto crypto during a bear market might be a profitable alternative strategy. The value of your assets might decrease in FIAT terms, but you will still hold the same bag you did previously. You also won’t risk decreasing the size of your bags if the market decides to continue climbing.

HODLing is recommended mainly for large portfolios that do not “need” to sell any of their holdings any time soon. They can utilize the power of staking to increase the size of their position through recurring rewards. This will become more evident with cryptocurrencies that are both strong fundamentally and very rewarding to their users. The most common example is Ethereum when it is fully transitioned to Proof-of-Stake consensus. Hence we also tend to believe that Ethereum will perform much better in the coming bear market than it did in the previous one.

Avoid these mistakes

In order to execute the selling and reinvesting plan in the best way possible, be mindful of the following:

  • Do not sell your whole stack – Selling everything you have puts you in an unfavorable position. Keeping a portion of your crypto allows you to sell if the market unexpectedly goes much higher, but it also keeps you emotionally invested in the long-term success of the idea behind the asset.
  • Do not sell into FIAT currencies – Do not sell your crypto for FIAT at this point. Instead, sell it to stablecoins. This way you will not be taxed (exceptions apply) on capital gains and you will not lose part of your profits before you choose to re-enter the market.
  • Create a buyback plan ahead of time – If you do not have a plan for your funds after you sell, you might re-enter your positions too fast or too late. Once again, align your strategy with your goals and expectations and start scaling back in as the price comes close to your goal.
  • Do not fall for FUD – Do not get emotionally involved with clickbait content on Youtube, or Social Media. Most articles exaggerate their main message to capture your click. Instead, if you notice something that causes you to worry, make sure you track the sources and find the real story. Then, look at the issue objectively and decide whether your fear is rational or not.
  • Do not expect the same bear market as the previous cycle – Given that this bull market is completely different than the previous one, the bear market is likely to be the same. Remember that we now have institutional buyers involved, and they are most likely waiting to enter the market. This might mean that the bear market will be less painful and short-lived.

Wrapping up

Knowing when and how to reinvest crypto profits is probably the most important skill you can develop in your investment career. Given the rapid growth of the industry, maximizing your liquid capital is in your best interest, and you should explore strategies that can get you there.

In this article, we talked about the importance of making realistic predictions for the start of the next bear market, as well as reasons that could trigger it.

We also talked about the ideal selling strategy, namely the ability to “scale-out” before the market gets overheated. Selling at increments helps you safely sell your holdings in case of unpredictable market drops.

Finally, we looked at the different buyback scenarios and how you can best benefit from staking during bull markets. Remember, larger portfolios might benefit more from a slightly different approach than small and mid-sized ones. Additionally, selling is not the only option when looking at how to reinvest crypto profits. HODLing can also create new capital that can be used for this reason.

Overall, it is important to remember that cryptocurrency market cycles don’t repeat but are awfully similar. And this gives you a great opportunity to increase your cryptocurrency holdings by selling at the right moment. Therefore, make sure you set your selling targets.

Note that this article does not aim to provide financial advice. Everything contained in this article is the opinion of the author and should only be regarded as educational material.