4 mins

Things you need to consider before selling crypto

May 30, 2022


Crypto trading is becoming the most prominent trend today, with millions all over the world investing in crypto. The high returns make it an extremely attractive deal, and the upcoming use cases (applications) of blockchain technology are revamping how we interact with the world.

On the flip side, the legality of cryptocurrencies is still questionable. Still, various governments have resorted to heavily taxing crypto profits under the pretext of protecting a large number of users from the possibility of fraud. Since most of the blockchain technology prides itself on decentralisation, the lack of regulation could sometimes harm investors in an unfamiliar environment. Here’s a subtle reminder to do an adequate amount of research before investing in crypto.

But, what happens after you invest in crypto?

While investing in an asset, it may increase or decrease in value, but the transaction is complete, and the profit or loss is truly determined only when you complete the sale. The entire cycle of buying and selling the asset determines the completion of the event. In fact, the tax implications are also determined after the sale of the asset, on the final profit booked.

So, if you’ve invested in crypto today and it is making a 100x profit, it is still unrealised profit unless you decide to sell it. Except for the 1% transaction tax, which has to be paid on every purchase or sale of virtual digital assets, you will have to pay the 30% tax only when you sell the asset, and you will have to pay it on the profit value.

Now that you know that strategising when you will sell your crypto is just as important as when you should buy it, let’s take a deep dive into some important factors to consider before selling crypto.

5 Things To Consider Before Selling Crypto

  1. Why are you selling?

It is vital to ask yourself what the underlying cause for selling your crypto is. Is it because it’s too volatile and is taking too much of your time? If you wish to earn passive income from your crypto, consider lending instead of selling it. This option enables you to earn passive income while your crypto is being used by someone who has borrowed it. Through crypto lending, you could earn interest without worrying too much about spending time tracking the market. Further, opt for currencies that may be volatile but always stabilise at a higher value than what they fell from or what you purchased them for.  

  1. How will you use the proceeds?

If you need the proceeds for an emergency, then there are no two about it. However, if you are using the proceeds to cover expenditures, consider alternative routes like gifting crypto to a relative in exchange for cash. This technique is advantageous because gifting crypto to a close relative up to the value of Rs. 50,000 is a tax-free transaction. You can also plan your expenses in such a way that you cover all gifting expenses up to Rs. 50,000 through crypto. Remember, gifting someone crypto on the occasion of their marriage does not come with any conditions, so you can gift crypto to someone who is not a relative, and you can gift crypto worth more than Rs. 50,000, and it will be entirely tax-free.

  1. How much profit are you making?

A safe strategy to adopt would be to sell a part of your crypto of it, making a considerable amount of profit. Since the crypto markets are volatile, it would make sense to book profits from time to time, reducing your risk and exposure. This method will also help you counter any future losses against their gains and rebalance your portfolio. Opt for this method only if you have made a significant amount of profit.

  1. Do you have any loss-making crypto assets that you think won’t generate any more returns?

Let’s say you absolutely need to sell your crypto. Take a look at your portfolio and check for any crypto assets that are giving you losses and that you don’t think will convert into profit-making assets any time soon. While selling crypto, you can match the losses to the profits for the sole reason of reducing your tax burden. As per the recent Income Tax regulations on crypto and other virtual digital assets in India, you cannot set off the losses from crypto against any other income. You cannot even carry forward the losses of one year to the following year. However, only the total profits from crypto are considered for taxation. By setting off the crypto losses from the crypto profit, you can reduce your final profit, thus reducing the final tax burden.

  1. What are the market conditions?

If the market is falling rapidly, there is a chance it will stabilise. So, if you’re thinking of a panic sell, try to reconsider and explore the reason for the drop. If it is something permanent like government regulations, then it would make sense to wrap it up; however, this would be an improbable scenario. If it is just regular supply and demand, then take a look at the previous trends. Cryptocurrencies have a tendency to increase and form a golden cross which is a rapid uptick in value after a huge loss. 

5 Times When You Should Sell Crypto

  1. If you’re getting high returns

Volatile Markets have a tendency to take away those attractive profits you were once making. If the cryptocurrency has doubled or tripled in value since the time you purchased it, consider selling only a part of it - if you think it will considerably increase in value even further. By reducing the risk, you can also explore other investment opportunities with the profit value. 

  1. If you don’t see long-term profitability

If you are making losses and don’t see any future viability, but the prices keep dropping in value, instead of infusing more capital, you can cut losses and sell the crypto. Don’t forget to try to match the losses to the profits as much as possible to reduce the tax burden.

  1. If you find better investment opportunities

With all your capital stuck in one cryptocurrency, if you are sure of the profitability of another cryptocurrency or another form of investment which will give you a better yield, then selling your crypto makes complete sense.

  1. If you want to take advantage of tax benefits

Whether you are selling it at a profit or loss, there are a number of ways in which you can plan the sale of your crypto to suit tax-saving strategies. Kuber Tax will provide the latest information that will help you properly plan your taxes.

  1. If the trends project a downward trend in the future

If there are some major announcements that jeopardise the very future of the cryptocurrency ecosystem, it would be the right decision to sell your crypto. If there are projections that point to an inevitable downward trend in the crypto you hold, selling and buying at a lower value will be a profitable strategy.

Parting Thoughts

Investment in crypto requires a meticulously planned out strategy most of the time. Experts claim that long-term investments in crypto have proven to be a better investment than short-term trading. These techniques will help you plan when you should sell your crypto so that you are prepared to make the most amount of profit possible.

Have the tax calculations of crypto income got you worried? Track your investments with ease and generate detailed tax reports with the crypto tax calculator - KuberTax! 

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