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I made a post on this topic a few days ago and I got a whole lot of replies from people responding defiantly; "hodl forever", "never sell".
Quite frankly, this is just plain bad investing advice and I think, given the current run-up in price, we should not be steering people towards this level of risky behavior.
On this forum we frequently advise people not to invest more than they are willing to lose. Quite frankly, this is excellent advice, since bitcoin remains an extremely risky investment; subject to wild market volatility on rumor and action, at a moments notice.
Not only does bitcoin suffer from frequent market corrections it runs the real risk of massive corrections for any number of reasons; all of which we have seen in the past.
The are many reasons that bitcoin can suffer massive market corrections; from exchanges collapsing, massive dumps, huge thefts, software-bugs, numerous forms of network attacks, bad press, and government threats to name just a few.
No matter how happy and pleased you are looking at your paper profit today, the fact remains, that the price of bitcoin could collapse dramatically, if not all of the way to zero, with virtually no notice. In just the past year we had Hearn's ragequit crash and the bitfinex hack; both of which caused huge market corrections that took a long time to recover from.
When you invested in bitcoin ("no more than you were willing to lose"), you had a certain amount of value in mind.
Let's say you invested $10,000 in bitcoin with the though that, even if you lost it all, you could live with it. It would be painful, who wouldn't be pissed about losing 10 grand, but let's say that was your personal level of risk that you were comfortable with.
Now, let's say you bought bitcoin at an average price of $300 and, today, your $10,000 investment is now worth $30,000 on paper.
Here's the thing. Now, you no longer have $10k at risk, you have $30k. While maybe you were ok with watching your 10k investment go to zero, are you going to be willing to see a 30k investment do the same?
Probably not. At least ask your significant other if they are cool with it.
It is important to realize that bitcoin is not the only high-risk=high-return investment in the world. In fact, had you bought $10,000 worth of NVIDIA stock a year ago, and $10,000 worth of bitcoin, the NVIDIA stock would have been a better investment and (arguably) less risky.
- $10k in NVIDIA stock would be worth $35k, today.
- $10k in bitcoin would be worth $22k
The point is, that bitcoin is not the only way to make a high return on your risky investment. Just because you 'sell' some of your bitcoin, doesn't mean you have to stop investing. However, it is good basic financial advice that you diversify your portfolio; better to have four risky investments than just one.
Maybe, when you started, bitcoin represented a small percentage of your portfolio. However, maybe today, it's now a much larger and, arguably, unsafe and unbalanced percentage.
If you have bitcoin that is subject to long-term capital gains, and thus taxed at a much lower rate, you should probably consider selling some of it in the new year. Perhaps you could use some of those gains to offset other losses (if you have any), and rebalance your portfolio.
This is just basic investing advice 101.
I know everyone is enjoying staring at their paper-profits right now, but you need to re-evaluate your risk tolerance; and not just about losing your original investment, but your gains as well.
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