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 crypto earnings. Smart investors know not to hold on to cryptocurrencies for too long at the risk of a big correction wiping out their gains.
Therefore, it is always good to have a solid plan on what to do after a big crypto win. It’s tempting to spend money on a car or some other luxury purchase, which may be justifiable up to a point. However, it is also important to remember that these assets (cars, luxury bags, clothes, etc.) tend to depreciate over time.
Instead of spending all of your earnings on asset depreciation, consider reinvesting your cryptocurrency earnings in other investment and trading opportunities. After making a big crypto profit, a little foresight and planning will help you take crypto profits and reinvest them to see even more significant returns in the future.
Knowing when to enter and exit the markets to maximize profits and cut losses is a trick well kept in the book of successful crypto trading. Given the uncertainty in the market, a trader’s decisions can significantly affect how much profit he makes (or how much he loses).
Bitcoin, for example, has gone from a low of $3,967 to a high of $19,901 in a matter of months. Altcoins follow as Bitcoin rises, allowing investors to see big gains. However, it is important to know when to take profit.
Some traders prepared for the loss by being greedy and hoping for another 10x increase. Don’t be like them: have a crypto profit making strategy and look for wise rollover options for when the uptrend ends. As markets go, after a bull run, a bear market is likely to follow sooner or later.
How are profits made in crypto and reinvested?
So when should you profit from cryptocurrencies? Knowing exactly when is a good time to take profits is difficult, as it often involves solid planning and discipline. It’s a good problem because it means you’ve made a profit. However, it can also be difficult, especially if you don’t have a clear goal of what to do with the money you’ve earned.
Taking profit is complicated. Basically, you are 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 stop is part of being smart and avoiding losses. Furthermore, knowing how to invest crypto profits in lucrative channels also requires research and decision-making skills.
To know when to take profit, ask yourself the following questions:
What was my reason for buying this coin?
Unlike stocks, which represent something more concrete, the value of a cryptocurrency depends on how many people say it is valuable. Stock investors often invest based on a company’s valuation or technical analysis. With cryptocurrencies, it’s a little bit different because it’s a lot like investing in the future of a community that believes that a certain cryptocurrency is really valuable.
Ideally, before buying a coin, one should have a more substantial reason than just buying the hype or excitement of it. If, for example, you bought Bitcoin because you think it’s a good long-term investment, then you might be able to hold out depending on market conditions.
You can take profits, for example, if the prospect of an impending bear market doesn’t sit well with you. Perhaps you would like to invest it elsewhere and re-enter the market at a more favorable time? That is also acceptable.
However, if you realized that you bought a fancy new coin on a whim because it had a cool name or was popular at the time, then it might be 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 may want to consider taking your profits and reinvesting them elsewhere.
What result do I want?
Everyone wants to get money out of a trade. But again, when thinking about making a profit, the question is “how much is enough?” In terms of results, are you willing to risk it all and maybe take a loss because you think you will get back ten times what you lost?
It’s not easy to be so sure about cryptocurrencies because you usually don’t know how the currency will behave. You could sell and see the price continue to rise, for example, and regret selling so soon. But then again, it’s really hard to tell because cryptocurrency 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 to focus on the percentage of profit you’ve already made. People have different preferences depending on the risk they are willing to take. However, most traders aim for at least 50% before making a profit.
That said, you can also aim for 100% profit before you decide to take. You can even aim for higher percentages. It really depends on how much risk you’re comfortable with. It can be tempting to see where your investment takes you if, for example, it reaches 100% (or even much more).
Know, however, that this is unstable territory and may put your investment at risk. This is fine as long as you can deal with extreme volatility. Otherwise, you should have a clear percentage in mind to indicate when you are going to withdraw your winnings from the table.
Is there a better opportunity?
Investing is about finding the right opportunities at the right time. If you find something better than what you are currently investing 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 redirecting it to something else. But remember how much profit you lose by going with option one and giving up option two, which involves “opportunity cost.”
It could also provide insight into another characteristic that makes a cryptocurrency risky to use in real-world transactions: cryptocurrency volatility. Consider that you will be giving up potential earnings from your current crypto and ask yourself if you are willing to take the risk.
This also applies to investors with multiple investments. If you decide that you prefer to invest the time and money you spent in cryptocurrencies in another (new or current) opportunity, you will also have to weigh the pros and cons.
Best Ways to Earn Cryptocurrency Profits and Reinvest Them
Should You Invest Cryptocurrency Profits After You’ve Taken Them Off the Table? Ideally, yes, if your goal is to keep increasing your earnings. There are many options that you can consider if you have decided to make crypto profits.
Spend a portion of your earnings, then reinvest the rest
. One option is to use a small portion of your crypto earnings before reinvesting the rest. By doing so, you can ensure that you can eventually cash out and earn one hundred percent of your earnings.
Essentially, you are protecting yourself from future losses by ensuring that your initial funds are not lost. Some investors hope that their profits will reach the amount they deposited as initial capital in order to avoid future losses and, at the same time, provide a way to continue investing.
You can also reinvest for the next bull run after withdrawing some of your profits before reinvesting.
Investing in Mining
Putting your own trading profits into mining is another profitable option if you want to reinvest your crypto profits. If you are savvy about technology and what it takes to mine Bitcoin efficiently, this is a good option for you.
You can diversify your crypto earnings through mining and trading, thus opening up multiple streams of crypto-based income. You can use your mining earnings as capital to actively trade. In turn, you can also use the earnings from trading to upgrade mining equipment and pay related costs.
Regardless of whether the market is slow or stagnant, this strategy allows you to continue to make money by offsetting losses from one of your other sources of income. However, to pull off this strategy, you will need prior experience in cryptocurrency trading and mining.
Invest in New Coins
One strategy expert traders use is to select extremely high risk (and therefore also high reward) coins and Initial Coin Offerings (ICOs) to make significant profits. Some traders use this tactic to hold significant portions of their investment portfolios in major currencies like BTC, Ether (ETH), and Litecoin (LTC).
Once they make a significant profit and close an investment, they buy it back at a lower price. After which, a portion of the profit can be used to fund intense speculation (high-risk, high-reward transactions) in ICOs and innovative coins.
For example, if you traded 5 BTC and were able to convert it to 8 BTC, you can invest the 3 BTC you earned in a new coin or project that could generate up to 100x returns.
If the project is a success, it will make you an early investor and you will have earned rewards for early adoption. Otherwise, you only risked a part of your crypto and still have your profits through major coins.
Invest in a rental property
Investing your crypto profits 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 with cryptocurrency trading for a long time. You can even save some of your earnings from your rental property to reinvest in crypto when the next bull run hits.
If you’ve never invested in real estate, it can 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-earned crypto profits on.
Buy Dividend Stocks Dividend stocks
are also a great investment opportunity. You may find that real estate rentals are not for you or you may want to diversify your investments to maximize the growth of your crypto earnings.
Dividend stocks pay investors out of their earnings: Some examples of companies that pay their investors every few months are tech giants Apple and Microsoft. With a correctly set up dividend plan, investors can receive income from their stock investments every month.
Store your profits
Lastly, traders also take profits to store in the form of coins to keep their capital away from the risks associated with day trading. If, for example, you trade Bitcoin and can convert 2 BTC to 2.4 BTC, you can send the 0.4 BTC to a cold storage wallet or offline wallet. The amount can be held as a long position along with any other profits you have set aside.
However, keep in mind that you cannot quickly access these coins if you suddenly want to invest them at the moment when the market starts to enter the bull season again. To protect against this, you can also take short positions when the market is bearish to offset potential losses your deposited coins might take.
Another option is to have cash, which may not be as rewarding as the other options, but is still a viable option. You can deposit your crypto earnings in a savings account for future investment opportunities or wait to buy during the next market crash.
Other Ways to Use Crypto Earnings
While not necessarily rollover options, here are some smarter ways to ensure your crypto earnings are put to good use:
Fun fact: The term HODL was coined when someone misspelled ” hold” on a cryptocurrency forum, and some people thought it meant “wait for your life”. Now, it has come to mean both terms in crypto. When it comes to making a profit versus holding crypto, both are viable options depending on your portfolio and goal.
Having said that, HODL is great if you have a huge portfolio that doesn’t need to be sold anytime soon. Instead, you can stake your holdings to increase the amount of money you have, especially if your chosen crypto is relatively strong and rewarding, like Ether for example.
Ethereum will soon move to a PoS model, with investors anticipating better performance during upcoming bear markets because crypto holders can now stake their ETH holdings. Holding on to cryptocurrencies during a bear market can be a viable option because you will essentially be carrying the same bag, even if your investment is reduced in terms of fiat money.
Donating cryptocurrency is a great way to support a charity, church, food bank, or cause you believe in. Organizations like The Giving Block specialize in facilitating cryptocurrency donations to non-profits.
Once you donate cryptocurrency, it may also be tax deductible and can help offset your cryptocurrency earnings. Donating cryptocurrency is a great way to help others while reducing your tax burden. When you donate cryptocurrency to nonprofit organizations, you will receive a tax deduction for the value of the cryptocurrency instead of paying capital gains tax.
Consult a Tax Accountant
One thing you absolutely must do after earning a large amount of crypto is to pay your taxes. In the United States, the IRS has sent letters to more than 10,000 cryptocurrency holders warning them to pay their taxes with cryptocurrency earnings or make corrections.
Avoiding paying your taxes could get you into trouble, and you’ll end up losing even more money in penalties. Taxpayers could also be subject to criminal prosecution for failing to pay their crypto taxes.
If you want to know more about how cryptocurrencies are taxed, read our guide here.
Pay your current bills
Spending your earnings on something new and shiny can be tempting. But, before you do that, make sure you pay off any debt first. There is nothing wrong with enjoying your earnings by buying whatever you want. However, be financially prudent by paying credit card fees and other bills before you splurge on anything.
This way, you’ll have a clearer idea of how much you have left over after paying for everything. You can then reserve a portion to reinvest and a portion to spend as you wish.
Also, keeping your debts when you have enough money to pay them off is like giving banks free money. By not paying on time, they are free to penalize you and charge you late fees, which you will eventually have to pay later.
How to make profit from cryptocurrencies without selling
How do you secure profits in cryptocurrencies? There are many ways and the most common method used to profit from cryptocurrencies is to withdraw from trading at the first sign of trouble.
There are other options for earning unsold cryptocurrencies, should that be the route you want to take:
If you’re looking for a relatively safe way to invest your money and earn a consistent return, peer-to-peer ( P2P) are a great option. This is particularly applicable if you have a large amount of cryptocurrency stored in your wallet.
Cryptocurrency-based P2P lending is heavily based on Ethereum because it relies heavily on smart contracts. With P2P lending, you can lend your crypto safely with a guaranteed return of around 10% to 20%.
ETH loans are allowed on platforms like Maker, where people can get a safe source of capital (in the case of developers and business owners) without having to sell their crypto assets.
Because the crypto market is completely independent of external laws and control, price swings between exchanges are relatively common. Cryptocurrency holders looking for a way to make an additional profit can take advantage of this through arbitrage.
Arbitrage in crypto is one of the most effective methods of making money from price differences between different exchanges. First, select a currency that interests you and check its prices on different exchanges.
You should see bargain price offers on some exchanges. Take it at a bargain price and find another exchange where the same coin is trading 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 range from 5% to 40%.
Digital dividends and interest
There are prominent cryptocurrencies that pay dividends to their owners, such as NEO, KuCoin, and BTMX. Holders of these cryptocurrencies can earn substantial amounts of money as passive income just by holding them in their wallets. If you want to learn more, head over to the article we did on crypto dividends
. Additionally, certain crypto platforms like StormGain offer interest on the cryptocurrencies that a user uses most often.
Direct your actions based on a plan
In the words of the American businessman William J. O’Neil: “The secret is to jump out of the elevator on one of the floors on the way up and not go back down.”
While O’Neil intended it for the stock market, the same principle can also be applied for crypto profits. But, whether your strategy is to take profits off the table, let your profits continue to rise in the hope of even better performance in the future, etc., it’s important that you have a plan 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.