Importance Of Exit Strategy In Crypto
Simply holding a cryptocurrency and waiting for it to make you a millionaire and in the meantime, doing nothing is not what you should be doing if you want to be successful in the business of investing. You need to have a proper exit strategy to get the most out of your investment.
Investopedia defines an exit strategy as an entrepreneur's plan to sell shares/investment in a company in order to liquidate his stake and make profits in case the business is successful.
Now, when it comes to crypto, an exit strategy may be defined as selling a portion of your holdings when the price reaches a particular target. For example, if you have 1 BTC and if you think that the price can go up to $1 million. Let's say that you plan a 3-step exit, so, you can take out 0.2 BTC when the price hits $250k, 0.3 BTC at 500k, and the remaining 0.5 BTC at $1 million.
Another strategy could be taking out a percentage of your holding on every gain of 50%. Let's say, you are holding 1 BTC and for every percentage rise of 50, you take out 5% of your total Bitcoin.
By reading the above examples, you must have understood the concept of exit strategy in crypto. Now, you might miss out on huge profits if BTC hits $1 million and you might think that it would be better to sell at that price but what if the price never reaches there. I am not saying it won't but there is always a slight chance of that as well.
When I started investing in cryptocurrency in 2016-17, I didn't know anything about investing back then. My first ever investment was BTC and I remember I put a little under $100 in BTC back then. I totally forgot about my investment as I was living a busy college life. I checked after a few months and found that $100 had grown into $300. I immediately thought cashed out only to see BTC go higher but I still made a profit, so, it was a good first investment.
I became more interested in crypto after that and I invested a major chunk of my money into IOTA and XRP. By the end of 2017, these two coins alone gave me more than 20x profits and that's where I needed an exit strategy. Unfortunately, I had none and I didn't know what to do back then.
I saw my investment come back down more than 90% and I couldn't do anything. It is because I had no strategy. I had invested in good coins and all of them gave me good returns but what I understood by my mistake is that only investing in good coins isn't going to make you rich, you need to have a proper exit strategy and that's what I call smart investing.
