This comes with some DISCLAIMERS and WARNINGS. First, this is long, but I hope for it to be a useful tool for those who need it. Second, I need to remind you that I am NOT a financial advisor, I am NOT an accountant, and the below is not intended to be financial advice, but simply me sharing my process for making decisions about my own bitcoin. Enjoy!
A question I discuss often is what price to sell bitcoin. Below are my thoughts on when I plan to sell my own bitcoin which I hope you find helpful.
I start by creating a schedule of various prices that I believe bitcoin could go to. Most recently, my schedule included prices as high as $100,000 or even $300k.
When you multiply your current amount of bitcoin by the one of the prices above, you can look at the total amount of money and think "What would I do with this?"
If you think, "that's nice, but not life changing," then perhaps you might want to increase your bitcoin position if your current portfolio risk profile can handle more bitcoin allocation. A rule of thumb I often reference with folks is that an allocation of 3-5% is reasonable for taking a gamble on a highly speculative and risky new asset such as bitcoin. More than that, and you're likely taking a serious gamble on bitcoin. Less than 1-3%, and you probably have some room for taking a larger gamble on bitcoin.
If you think, "holy cow, that would be insane," and you start contemplating whether to move the needle on your retirement age, or dreaming about what large purchase or other big financial decision you might make with that amount of money, then I would suggest the following next step:
Come up with a schedule of various prices such as "I will sell 0.1 BTC when the price of bitcoin goes up $2,000." So for someone who has 2 bitcoins to their name, this could look like the following:
Cash out 0.1BTC every $2,000 change in price:
price BTC value cash in hand2 $19,000 $38,000 $0
1.9 21,000 39,900 2,100
1.8 23,000 41,400 4,400
1.7 25,000 42,500 6,900
1.6 27,000 43,200 9,600
1.5 29,000 43,500 12,500
1.4 31,000 43,400 15,600
1.3 33,000 42,900 18,900
1.2 35,000 42,000 22,400
1.1 37,000 40,700 26,100
1 39,000 39,000 30,000
So here are three scenarios and observations:
"Cash out 0.1 BTC every $2,000 change in price" leaves you with 1 bitcoin when the price hits $39,000 and puts $30,000 into your bank account by that point in time.
"Cash out 0.1 BTC every $5,000 change in price" leaves you with 1 bitcoin when the price hits $69,000 and puts $$46,500 into your bank account along the way.
"Cash out 0.1 BTC every $10,000 change in price" leaves you with 1.2 bitcoin when the price hits $100,000 and puts $74,000 into your bank account along the way.
I recognize many of my friends have an all or nothing mentality, to which I can simply say good luck and I hope you don't stress too much when contemplating when to sell! However, I would rebuttal with a message of you probably will never need (or want) to sell all of your bitcoin. I believe this technology and asset is here to stay, so my thoughts are we will always have a use for bitcoin. We are simply debating when it makes sense to diversify a portion of our bitcoin into another asset or when we would want to buy something with (a portion of) this investment.
When the price speculations start throwing "insanely" high prices out there, I often say "you're gonna want to make sure you hold on to at least one..."
Have a happy and safe Thanksgiving!
Monty
