65% of Americans make this mistake after investing in crypto
Not keeping your crypto might be a decision you will regret.
Crypto is on the rise, with a study by The Ascent concluding that more than 50 million Americans are likely to buy crypto over the next year. Right now, most buyers buy crypto as an investment. Almost 67% of those who own or have owned a crypto said that was the reason they bought it.
Unfortunately, a large portion of buyers also make a big mistake with their crypto: they sell it too quickly. About 65% sell within a year of purchasing the crypto, and more than half sell them within six months.
In some cases, it may be a good idea to unload the crypto in less than a year. However, you are generally better off when buying crypto as a long term investment. Here’s why.
It gives your crypto time to grow
Even though most buyers view crypto as an investment, many do not use the best investment strategy. The approach that has stood the test of time is to invest for the long term. Buy cryptocurrencies that you think will increase in value and hold them for at least three to five years.
To date, this is the method that has produced the biggest gains with cryptocurrency. Here are some examples of the gains the top coins have made over the past five years:
If you had bought either one or the other five years ago and sold within a year, you could have made some money. But you wouldn’t have won as much as by hanging on longer.
There is no guarantee that you will profit from holding crypto for years to come. It is a high risk investment, and it is very volatile. Investing for the long term simply gives you the best chance of success. Short-term investing is much more difficult because success depends on investing at the right time and it is impossible to predict price movements.
If you don’t plan to hold your investment for the long term, you may be forced to sell at the first big drop in price. Or, if the price goes up, you might be tempted to take your profits and potentially miss out on future gains.
You pay less taxes and fees
There are some additional costs when selling crypto in a year. The main one is the tax on short-term capital gains.
Whenever you make a profit by selling or trading a cryptocurrency, the amount you earn is a capital gain. The IRS requires that you report capital gains and pay taxes on them. You pay short-term or long-term capital gains tax, depending on whether you’ve owned the crypto for more than a year. Short-term capital gains are taxed on your income. Long-term capital gains have lower tax rates.
If you keep your crypto for more than a year then you pay less tax when you sell it because it will be seen as a long term gain. You also don’t need to pay taxes on it until you sell. The 65% of consumers who sell crypto in a year end up paying more taxes.
Additionally, you have to pay transaction fees when you sell crypto. These aren’t too expensive with the best cryptocurrency apps and exchanges, but they’re still a cost you pay to sell. By limiting how often you sell cryptos, you pay less fees.
Selling crypto in a year isn’t always a bad decision. For example, if something changes and you no longer think a crypto is a good bet, then selling it might be the right decision.
Apart from these rare exceptions, the most effective strategy for investors is to play for the long term, and this applies to both stocks and crypto. Suppose you buy a crypto because you believe in its value. If you’re right, you’ll likely make more money by holding it rather than selling it too early. And you’ll save on taxes and fees, which will also help you maximize your profits.
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