Its been a rough year for cryptocurrency.
Bitcoin is down nearly 65% from its 2022 peak in early January.
Major exchanges are filing for bankruptcy.
Need a refresher on how crypto works? Check out our guide onhow to invest in cryptocurrency for beginners.
Calls for regulation are mounting.
The so-called crypto winter is starting to feel more like a crypto apocalypse.
It can be difficult to know when to cut your losses as an investor.
But an investment objective can make that decision easier.
People usually create an investment objective before they purchase an asset.
If you dont already have one, now is a good time to create it.
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What Is an Investment Objective?
Experienced investors may draft an investment thesis thats several pages long.
But you’re free to keep yours simple.
Consider these questions:
Did you know?
Some investors create a hard stop-loss as part of their investment objective.
Taking at least some profit can act as a hedge against potential losses in the future.
No matter how you define your investment objective, you should never invest more than youre willing to lose.
Most experts recommend allocating no more than 5% of your overall portfolio to speculative assets like cryptocurrency.
If you still believe in its long-term value, stick to your investment strategy and hold.
But if holding crypto no longer meets your investing goals, heres what comes next.
Then you’re free to transfer funds to your linked bank account.
Youll pay apercentage feeafter $200.
Some trading platforms likeRobinhood,eToroandWebull dont charge any fees to cash out your crypto.
Could Selling Crypto at a Loss Now Help You at Tax Time?
Selling at a loss isnt always a terrible idea.
Doing so can actually have positive tax implications if you took crypto profits earlier in the year.
When you sell an investment at a loss, you dont need to pay taxes on it.
And a capital loss can actually cancel out taxes on your crypto gains.
Youd owe capital gains tax on $100 when you file your tax return.
What to Do If Your Crypto Investment Objective Says Hold
Are you a die-hard believer in bitcoin?
If so, youll see the current market unrest as a temporary if not extreme fluctuation in price.
If your investment objective tells you to hold, its still important to understand the risks.
The Risks of Staying Invested in Cryptocurrency
High volatility is the most obvious risk with cryptocurrency.
Price fluctuations are common in the stock market.
But the massive highs and lows of the crypto market are unlike other assets.
Think critically about how you will get paid back and when.
People need to be protected from themselves sometimes, Lima told The Penny Hoarder.
Having a more centralized organization overseeing cryptocurrency is likely where the industry is going.
Smaller digital coins and exchanges with questionable financials may cease to exist as regulation ramps up.
Most of the crypto space is outright scams, Cole told The Penny Hoarder.
Theres a very high likelihood that most non-bitcoin crypto gets completely wiped out.
The truth is theres no way to know if bitcoin and other cryptocurrencies have hit bottom.
Prices could keep declining as the financials of digital coins and businesses in the industry face scrutiny.
FTXwent from a company valued at $32 billion to filing for bankruptcy in a matter of days.
Its dramatic demise shook the cryptocurrency industry to its core.
The pure scale of it has been insane, Cole said.
So whats the alternative?
When you purchase cryptocurrency, its typically stored in a custodial wallet attached to an exchange or broker.
These devices look like USB drives or small external hard drives.
Hardware wallets arent connected to the internet, so they arent susceptible to hacks and data breaches.
Its safer to custody crypto yourself, Cole said.
And its much easier to set up a hardware wallet than it used to be.
Ledgeris a popular maker of hardware wallets.
Its Nano S Plus model goes for $80 and can support up to 5,500 different crypto assets.
If you lose the hardware wallet, or the backup recovery phrase, your coins are gone forever.
Creating an investment objective helps make the decision to buy, sell or hold easier.
Write your investment objective down somewhere so you’ve got the option to refer back to it later.
Rachel Christian is a Certified Educator in Personal Finance and a senior writer for The Penny Hoarder.
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