If you're in any crypto-related Facebook Groups, I know you've seen someone say it. "Never sell at a loss", generally followed by a short anecdote of the time they sold a coin at a loss just prior to it shooting up. They mean well, I'm sure. The issue is that there are two skills lacking when this comment is made, economics and trading basics.
7 Times To Sell At A Loss...
These are just a few of many, many reasons to sell at a loss, but are the most frequently encountered situations in crypto.
1. ...If You Can Re-Enter Lower
I was recently told I was foolish to sell NEO at the price it was at because it would go back up. It went lower. I repurchased and ended up with 24% more NEO at the same price. It then went above the price I sold at. When you know a dip isn't as low as it will go, then you can use this strategy to increase the quantity you own for the same amount of BTC or to purchase the same quantity for less BTC.
2. ...If You Don't Believe In The Project
If you entered into a trade based on FOMO and don't believe in the project or have come to doubt the project, it's time to exit. There is nothing to be gained by letting yourself get more anxious as those numbers dip lower and lower. You don't have the emotional attachment necessary to hold through the dips, so let go and find something you do believe in.
3. ...If You Chased A Pump
That price freefall starts and those stop losses topple like a house of cards, you're wincing as you wonder how low it will go. Cut your losses, it could pump in a week, it could pump in a year. Don't be a long-term bag holder.
4. ...If The Project Has Had a Catastrophic Failure
This is something that is a risk in cryptocurrency. Projects fail and there are people holding bags two years later (looking at you Minters!). There are also projects that "fail" but never actually started, big talk, no action. No matter the reason, don't hold it. Let it R.I.P.
5. ...If The Coin Is Getting De-listed Due To Low Volume
I don't mean coins getting delisted by centralized exchanges because they qualify as securities and put the exchange at risk of SEC involvement, like some of the recent delisting done by Bittrex. I do mean when you're holding 5 BTC worth of a coin trading $500 daily volume and announced for delisting. Dump. Them. Bags. Dump 'Em Hard. Make it rain shitcoin.
6. ... If The Project Has A Successful Double Spend Attack
The core of any crypto is the trust in the blockchain, if a double spend occurs, the chain is not trustworthy and someone is capable of manipulating it. No better than fiat if it can be double spent.
7. ... If Your Satoshis Will Grow Faster Elsewhere
When you trade crypto, you're accumulating Bitcoin. It's your reserve currency, the primary in your trading pairs. If you're at a loss on an altcoin and you know another will rise before then, sell, make more BTC, re-enter if you want to.
Bag Holders Aren't HODL HEROES
The reasons people hold onto a coin or token at a loss are numerous, but the basic ones are: emotional attachment, unwillingness to admit a mistake, and hope. Don't be stubborn or trade on emotion. Logically weigh out your trades (and holds!).
The biggest question you should answer is "Would you buy it right now?". If the answer is "no", it's time to sell. Having pre-written reasons to sell (like the ones above, with the addition of positive reasons of course, like reaching a PRESET target price) can keep you trading based on logic and not emotion.
Benefits To Selling At A Loss
The first and most obvious is best explained with a simple phrase. Opportunity Cost. What is the next best option? That's what this opportunity is costing you. By weighing the opportunity cost, you get a good look at whether your money would make more money elsewhere. If it will, you're getting bigger gains by realizing a loss.
The second I'll cover here is much more complex and touches on tax strategies (USA, not familiar with taxes elsewhere). It's called Tax Gain/Loss Harvesting. You're in crypto, so you've had a rocking year. The year is closing out and your tax liability is looming. You can strategically realize some losses, which offsets your gains. This is complicated and should be discussed with a tax professional that is familiar with cryptocurrency trading, but realizing losses is a strategy that is used in the stock market as well.