In order to lock in gains that you have made when actively trading cryptocurrencies, you basically have two options:
- Transfer the money to your traditional bank account
- Move your money to another cryptocurrency, like Bitcoin
Well, there are some major issues with each option.
So in this post, I'll show you why each of these options is a bad idea and how you can plan ahead of time, to be sure that you don't miss another cryptocurrency trading opportunity.
Transfer the Money to Your Traditional Bank
Let's say that you just bought some newly-minted Bitcoin Cash and have some sweet gains, after price went parabolic.
You are worried about the price dropping as fast as it has risen…which is a very real possibility. So you want to cash out of your position, to lock in your gains.
However, you also see that ETHUSD is pulling back to support near $280. So you want to be able to take advantage of that opportunity to get in, when it hits that key level.
If you cash out of your BCHUSD position and transfer the money to your bank account, then it could be several days before you can execute another trade in ETHUSD. For example, if you buy your Bitcoin through Coinbase and move it to different exchanges to trade for other cryptocurrencies, then you would have to do the following:
BCH > BTC > Coinbase > Bank Account
On Coinbase, this could take as long as 4 days. Here's a screenshot from Coinbase Support.
Then getting your cash back into the exchange, when you want to buy BCHUSD again, will take another 2-4 days.
Well, as we have seen with many cryptocurrencies, eight days can mean making 100%…or totally missing the boat. These currencies move fast and if you miss out, they may be gone forever.
In addition, getting your bank account linked to various cryptocurrency exchanges can be a major headache.
…and that goes double if you live in the US.
The Bitfinex exchange recently announced that they are not allowing US clients to link their bank accounts to do direct US Dollar transfers to and from the exchange. The only way to trade on that exchange is to transfer in cryptocurrencies.
Here's part of the official announcement:
So transferring money to your bank account is not a viable option for traders looking to take full advantage of trading opportunities in the cryptocurrency markets.
What else can you do?
How about moving out of another cryptocurrency?
Let's take a look at that option…
Move Your Money to Another Cryptocurrency
Once you have some sweet gains and you want to take advantage of another opportunity, a second option is to transfer your holdings into another cryptocurrency. For example, you could transfer your money into Bitcoin, since that is usually the strongest currency, with the most liquidity.
However, now you are exposing yourself to a different type of risk. If you look at Bitcoin's history, it has had tremendous volatility and there have been several times when price has dropped significantly.
For example, here's a chart from 2016, where price dropped by almost 50%, before recovering.
Therefore, moving your gains to another cryptocurrency can result in you losing all of your gains…and then some. So what you can you do?
Here's how to can keep those gains, but still be ready to pull the trigger, when a good trade arises.
Transfer Into USD (or your local currency)
Some exchanges allow you to trade your cryptocurrency for your local currency, without doing a withdrawal to your bank, so that is the ideal situation. Bitfinex is an example of an exchange that does this.
You can trade several currencies on the platform, from your USD account on the exchange.
But not all exchanges have this capability. Here's what you can do if that is the case…
The Next Best Option for Active Cryptocurrency Traders
There is a cryptocurrency called Tether USD and it is pegged to the US Dollar. At first, traders might not give this currency a second look because there is no opportunity to make money trading it.
Here's a chart where you can see the Tether price versus the US Dollar. The green line shows the price of Tether and you can see that it moves in a very tight band between about $1.05 and $0.89.
Because of this price stability, it is a great place to keep your “cash” while you wait for the next trading opportunity.
So if you are going to actively trade cryptocurrencies, keep this in mind. Find exchanges where you can trade Tether USD (USDT) with your cryptocurrencies of choice.
If you don't see the currency you want to trade, you can always do:
USDT > BTC > the crypto currency you want
But it's much better if you can trade for USDT directly because you will save on transaction costs. Not all exchanges offer USDT, so be sure to check before you start trading.
Here's a list of a few brokers that offer USDT. Just remember to move the USDT to a wallet that you control.
So that is a great way to lock in your cryptocurrency trading gains before he market drops.
Cryptocurrency is a very new market and there is going to be a ton of volatility in the coming years.
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