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Bear Market Survival Guide 5/5: Rebalance Your Portfolio

Looking at your crypto portfolio in 2022 might make you decide that you want to rebalance and reallocate.

This could be the right time.

Maybe you bought a bunch of LTC or BCH a few years ago, but today it seems clear that ETH would have been the better choice. And when I say you …. I mean this guy I know. Over time assets perform differently. No one’s getting it right every time.

Time in the market vs. timing the market, as they say.

The way I see it, you can do one of two things:

1) HODL until the day comes when the underperforming asset rebounds enough to sell it. But let’s think about this for a minute. When you sell (trade) a crypto to get USD or USDC or BTC, you trigger a taxable event or a capital gain. You’ll have to report it and pay income tax depending on the profit you’ve made.

No one ever went broke by taking profits and we should all probably do it more often. But this could realistically mean waiting years before an asset rebounds. If ever. Meanwhile, over that same time period, it is entirely possible that another crypto (let’s just say ETH) could vastly outperform it.

2) This bring us to option two:
Sell the crypto (or some of it) at a loss and buy more of the crypto that you think has more potential. Sure, you’re taking a loss but you can claim this loss on your taxes as well. It will count in your favour once you add up your profits and losses for the year. Plus that other crypto may be at a discount based on historical data. You know more now than you did back then so it’s not impossible that you could correct for a previous mistake or an impulsive buy.

This offers no guarantee that you’ll get it right, but claiming a loss while rebalancing your portfolio seems better than paying taxes to move from crypto A to crypto B.

Related:
Learn about Strategizing Your Crypto Portfolio