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.
One example is Poloniex. Here's what you can currently trade against USDT.
If you don't see the currency you want to trade, you can always do:
USDT > BTC > the crypto currency you want
But it is 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.
Just be aware that there are a lot of unanswered questions about Tether. If you really need to use Tether, then be aware of the risks.
The biggest risk is that each Tether is not backed by $1 US Dollar, like it says on their website. If that is the case, then when the cryptocurrency bubble pops, there might not be enough liquidity in Tether and they may fold.
Another risk is that their lack of transparency could cause the US government to shut them down. So use extreme caution when using this option and don't let your money sit in USDT for too long.
Some required reading on the subject:
- The mystery of Bitfinex/Tether
- Tether keeps issuing millions in new currency
Conclusion
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.
Before I end this post…a word of warning. Also remember what can happen when you put price controls on any asset.
We have seen this in the futures markets and recently with the Swiss Franc. Not allowing an asset to float to find market equilibrium can cause huge moves, if a peg no longer becomes sustainable.
Therefore, moving some of your excess cash to your bank account periodically is a good idea too.
Happy crypto trading!
Hi, Hugh:
As a new investor, (Canadian) I am finding your site to be rarely informative in a sea of misinformation. My actual search was looking for exit strategies, which in my estimation has to be the 1st essential in volatile investing. I find it pathetic that countless search results reveal only buy opportunities, such as my current search into the recent BTT rush. Therefor virtually guaranteeing that one is going to get hurt bad. I will not consider entering any markets unless I can find sure-fire ways to get out quick-in as little as 24 hrs or less! Any help on this is appreciated! Thanks.
Hey Patrick,
Yeah, emphasis on the entry or exit is going to come down to how you view the markets. No right or wrong, just depends on how you see the world.
I personally believe that the entry is more important because it’s something that you can clearly define. After you can establish that the entry has an advantage, then you can work on getting more per trade with the exit. But without confidence in your entries, the exits are a moot point because you won’t enter trades consistently.
I’m not a day trader, so if you want to learn that, check out these two interviews:
https://www.tradingheroes.com/ttl026-greg-mcleod-scalping-forex/
https://www.tradingheroes.com/ttl-0015-trading-for-a-living-risking-only-8-to-12-pips-per-trade-kim-krompass/
Hope your trading is going well.
Hugh
Hi Hugh,
Thank you for your blog, it has been very instructive so far.
I wanted to ask your opinion on the team behind Tether. I have done a bit a research on this altcoin and it seems that everything is not as clean as it should be.
There is a lot of fire towards this altcoin and its founders (apparently the same as bitfinex ?).
I have read terms like wash trading, paradise papers and fraud : https://www.reddit.com/r/Tether/comments/7reu2l/does_anyone_know_who_the_founders_dev_of_tether/
(this links provides with others links on the matter which in turn, etc)
I have also read that Tether was hacked in late 2017 for 30 millions dollars.
What do you think about all this ?
Sorry for the odd question but since I am new to cryptotrading I wanted to know if this was standard practice.
Thanks
Hi Quentin,
Yeah, that’s a legitimate question and one that I’ve asked myself too. Since I first wrote this, I have done some research and I’m not too sure about Tether. I’ll update this post to reflect that, as soon as I form a conclusion.
First of all, there is going to be a lot of negative stuff about most new technology. We have to take everything with a grain of salt. Some is true, some is misinformed paranoia by people with too much time on their hands. Several other currencies were hacked in the beginning, so Tether getting hacked is nothing out of the ordinary. It was brand new tech and there were some flaws. Ethereum got hacked too, but they have taken steps to fix that issue.
That said, I think Tether is OK for now, when it comes to locking in some funds for a short time period to look for your next trade. My biggest concern is when the crash happens (and it will happen at some point) and everyone is heading for the exits. People will either try to cash out their funds into their fiat bank account or exchange for a pegged currency like Tether.
If there is bottleneck in exchange execution or how Tether pegs the currency, a lot of people will get stuck with big losses. Tether might even go under. I don’t see that happening soon, but I would start to look for “irrational exuberance” because that will show that the top is near.
To understand what could happen, look at what happens when governments peg and unpeg their fiat currencies. The most recent is the Swiss Franc or “Francogeddon” in 2015.
I’m still doing research and I suggest you do the same. I’ll update this post and do an in-depth writeup inside CoinCrew when I form a final conclusion.
Thanks,
Hugh
Hi Hugh!
Great writing. Since I’m totally new to Cryptocurrency, your detailed article has given me basic idea how it works. But still I’ve some questions.
“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”_
I wanna know how can I withdraw money in my fiat currency without doing withdrawal to my bank?
When I wanna buy crypto first time, let’s say from Bitfinex, does it require to link a bank account or takes money via credit card? If yes, are there other options whereby it can be done without using credit card or linking bank account?
You shared screen shot of Tether Trading on Poloniex, I’m confused what each column means practically? Can you please elaborate what does the row starting with ETH really mean?
I’m sorry for so many questions that might even seem dumb. Thanks a lot for your time and attention ?
Hi,
Thanks!
1. Trade your crypto for USD, EUR, or whatever you currency is.
2. I’m not sure about Bitfinex because the have shut out US traders. But some sites like Coinbase take credit cards. You can buy Bitcoin there, then transfer it to your exchange of choice for trading.
3. The first column is the price, the second is the amount of coins that have been traded that day and the third is the amount of price change that day.
There are no dumb questions 🙂
Hugh. Thank you for this well written article and advice. Any suggestions for specific tokens in the ICO stage or for low cost coins that just entered the exchange? I’m particularly interested in those that have aligned well with the ball cap graph
Hi Scott,
You’re welcome. I’m not big on any ICO’s right now. I think that market is starting to get overheated. However, if you do your research, then there are still quality coins out there. You won’t be able to get them for super cheap, but sometimes you need to pay up for real value. Almost all of the major coins are going through the dump phase right now, so they are all potential Baseball Caps. You need to research each coin and decide which ones have the best future. If you like any of them, then you can start to look for a level on the chart where the “bill” of the cap starts to form.