Crypto Bull Market Strategies
Crypto Bull markets are desirable periods for investors. These bull markets mean that a crypto market is performing well and that the price of a particular digital asset is on an upward trajectory. Although this is thrilling news for many investors, investing in crypto when it is in a bull market will often lead to heavy taxes on the currency that’s been purchased. In this article, we’ll explore some of the best ways to make the most out of a bull rush and reduce your tax bill while you’re at it.
What are Crypto Bull Markets?
‘Crypto bull market’ is a term used by crypto investors to describe when a crypto market is performing well. It involves a specific digital asset reaching a high price that it hasn’t yet experienced when there has been a significant number of investments in the cryptocurrency over a short period of time. This then causes the crypto to have both a high demand and a low supply.
Effects on the Crypto Community
Bull markets have a significant effect on multiple areas of the crypto sphere:
- More demand for crypto wallets: During bull markets, there is a surge in people entering the crypto market for the first time. These people will be in need of a crypto wallet so as to ensure any purchased assets are kept secure.
- Heightened prices of digital assets: increased demand for a particular cryptocurrency causes its price to increase, sometimes drastically.
- Increased regulation: it is common for regulators to step in during a bull rush in order to ensure the safety of all investors.
Crypto Bull Market Strategies
Here are some strategies to help you make the most of a bull rush:
Use a Technical Indicator
Technical indicators can be utilized to alert you as to when a particular digital asset may be about to experience a bull rush. They do this by monitoring multiple digital assets, and their performance, in the market, enabling investors to keep an eye on multiple coins passively. These indicators monitor market trends, often with moving averages. There are many technical indicators available to all kinds of investors including those who are focused on a single type of crypto to those who want to place their eggs in more baskets and keep an eye on markets as a whole.
Invest Early
Once you’ve made use of a technical indicator, and it has alerted you to the likllihood of a digital asset experience a bull rush, it is a good idea to invest as soon as possible. The longer you wait, the more the price of the asset will rise, but buying early means that you can sell for a higher price later down the line.
Utilize set limit orders
Once you’ve invested in a digital asset that is still experiencing a bull run, it can be tempting to keep hold of it in hopes that the price will continue to rise. Although there is some sensibility in this, it does have limits and, due to the general volatility of crypto, there is the continuous risk that the price could drop exponentially very quickly. To avoid missing out on the peak, it’s a good idea to sell portions of your assets regularly and keep other portions for when the price rises. Using a sell limit order can help you do this by automatically selling a specified portion of your assets when it reaches a given price in the market.
HODL your crypto
Hodling your crypto is a slang term that originated from a misspelled word on a 2013 Bitcoin forum. The user was meant to say that they were ‘holding’ their crypto, but the misspelling amused much of the community and it suddenly became a meme. HODLing crypto means that an investor can avoid having to pay Capital Gains tax on their crypto. However, holding your crypto in this way doesn’t mean that you cannot still earn from it. Instead, there are a variety of different ways that you can generate a passive income from your HODLed digital assets such as staking and lending.
Use Leveraged Trading to Multiply your Gains
Leveraging your crypto can be helpful during a bull rush. Doing so involves borrowing funds to increase the amount of crypto you own. In turn, this enables you to increase your position size beyond what you could afford with solely your own capital. However, you must conduct the necessary research before leveraging crypto because just as your gains could multiply should the assets continue to do well, they could just as quickly amplify your losses should the market crash.
Take Profits in Stablecoins
When possible, it is always a good idea to invest in options that would allow you to take your profits in stablecoins. Stablecoins are forms of cryptocurrencies that are tethered to a country’s usual form of currency, and so do not experience the same volatility that impacts all other forms of crypto. By taking your profits in stablecoins, you will experience a significant decrease in the amount of capital gains tax that you have to pay. This is because there will barely be any difference between your cost basis and sale/trade price. Capital gains Tax only charges you on the profit you generate when you sell, trade or spend cryptocurrency, so stablecoins can significantly reduce the tax bill in this regard.
Use the HIFI strategy
The Highest in First Out accouting strategy involves selling your most expensive coins first, as in, whatever cost you the most is what you should sell first. Doing this means that all future capital gains and other tax bills will not include this highest proceed asset, reducing the amount it costs. However, although the US does allow HIFO, you must create specific records to show the IRS.
ALSO READ: Why Flexible Spending Accounts (FSAs) Are a Smart Choice for Businesses of All Sizes