When to Sell Crypto

While many crypto investors believe that the best strategy is hodling, there are those who brave the market and sell when they feel the time is right.

But how do you know when to sell crypto? This guide discusses some cryptocurrency fundamentals to look for and some of the best times to sell.

When You Should Sell Crypto

For every crypto millionaire, there are dozens who sold their assets in a moment of panic, or held on to failing projects that dropped to zero. While the decision to sell or hold a cryptocurrency will always be a personal one, there are four occasions when you should at least consider selling your crypto, regardless of what the hodlers say:

• There is a lack of development in the project behind the blockchain and cryptocurrency.
• When you feel you have gained enough and can put the money in safer investments.
• There is a long streak of negative news about your chosen projects.
• You want to reallocate your funds.

Cryptocurrency Fundamentals

The crypto market is not like the stock market, where if you invest in a good business, you’re bound to see its stock increase over time. There may be short-term ups and downs in the stock market, but a business with strong fundamentals always prevails.

This is true of cryptocurrencies as well. Some of the important fundamentals for investing in cryptocurrency are:

• The team behind a project: The team should be experienced, dedicated, and organized. They should be credible, and you should be able to read about their accomplishments and past projects.
• The real-world application and potential of the project: There should always be an intent for a cryptocurrency and blockchain. A cryptocurrency with no goal driving it other than being a cryptocurrency in hopes of value appreciation does not have any value.
• Demand for the blockchain and cryptocurrency’s application: The mission and vision for the blockchain and cryptocurrency should be achievable and understandable, and the project should address real-world problems. This will drive demand more than just being another cryptocurrency.
• Technology behind the project: Find out if there is anything different that makes a cryptocurrency and blockchain stand out. It might be designed entirely different or use new methods—a “new” blockchain and cryptocurrency that does the same thing as the thousands of others is only adding to the list of imitators.

Examples of Differences

Bitcoin is the flagship asset of the market. Its original design was to be a payment method. Developers have been working tirelessly to give it more function, with good results for the blockchain—but in the end, the only thing keeping its price rising is hype and hope about its price.

Ethereum, on the other hand, was created with the intent of becoming a distributed virtual machine. Like Bitcoin, there are constant improvements being made; however, many developers are using Ethereum and projects like it to develop the emerging Web3.

The open-source XRP Ledger and its native token, XRP, are used by the company Ripple to provide payment services for banks, financial institutions, and businesses. This may or may not make XRP an investment worth purchasing, but it provides insights into how the cryptocurrency XRP is being used and some of its potential.

Specific Situations

The following sections cover some situations when you might want to sell the crypto you hold. These are not hard-and-fast rules, and you should do your own research and exercise caution, but they are certainly worth keeping in mind.

If There Has Been a Lack of Development Progress

Sometimes, you’ll see that a cryptocurrency project and its associated token have gotten off to a great start, making ambitious promises. The token does well and quickly rises in value—only to slowly bleed in terms of price over weeks or months. This steady drop in value sometimes happens because a project simply does not make enough development progress.

Crypto teams are still building products. If these products aren’t coming to fruition, the investors will quickly see through that. That’s why many teams put such an emphasis on being transparent and offering regular updates. Without such communication, it’s reasonable to assume that the team isn’t meeting its development goals, and that could be a sign to sell.

If You Have Gained a Substantial Amount

On the other hand, if you have made a substantial amount from your crypto purchase—let’s say the asset has doubled from its initial price—that may also be an opportunity to sell. The project may very well continue on an upward trend with strong growth, development, and market position, but a trader may want to take profits.

That decision depends on you. If you want to cash in and reallocate your capital, then selling part of your stake might be a good move. Otherwise, you can simply sit on the holdings if you feel that the project has sound fundamentals.

You Want to Reallocate Your Funds

Whether you’ve experienced strong returns or losses on a purchase, you might want to consider selling the asset to reallocate funds—to either cash in or cut your losses. Many traders do this, as more often than not, you’ll find that your assets are in the red.

Taking whatever holdings you have and putting them into another project could allow you to bounce back from a loss or capitalize on another promising asset. But remember, none of this is guaranteed, so you have to be sure of your decision. If you feel like you’ve invested in a sound project, stick to that, and don’t reallocate funds willy-nilly.

A Spate of Negative News

The crypto market lives and dies by the news cycle. While this is also true of the stock market, cryptocurrencies are far more heavily influenced by what takes place in the media. With how transparent everything is and the fact that influencers can have a large impact, it’s unsurprising that cryptocurrencies can move up and down by double-digit figures because of headlines.

Every now and then, you’ll see a string of negative news related to a particular project—and the token subsequently tanking. Sometimes negative headlines can provide a good buying opportunity, but if they are substantiated, the project may be headed for more bad news.

For instance, in 2022 the crypto news site CoinDesk published a report that the hedge fund Alameda held a large part of its assets in FTT, the token of the closely associated FTX exchange. Because FTT could not be liquidated easily, the news raised concerns that FTX itself was insolvent. Over the following weeks, the negative headlines accumulated until FTX declared a surprise bankruptcy.

The Bottom Line

The crypto market is capricious, and even the most seasoned of investors run into bad episodes. The focus should be consistent and a solid rubric for investment, which can help stem any losses. That said, it’s not the case that the crypto market has strict hard-and-fast rules that will let you sail through smoothly.

The guidelines above will help you navigate the difficult waters of crypto. By no means do they guarantee success, but they are effective guideposts that will help you move forward. The basic investing rules still apply—never invest more than you can afford to lose, and always conduct thorough research.

The comments, opinions, and analyses expressed on Investopedia are for informational purposes only. Read our warranty and liability disclaimer for more info. As of the date this article was written, the author does not own cryptocurrency.