54: Our Bitcoin Profit-Taking Strategies

0:00The holidays mean more travel, more shopping, more time online, and more personal info in more places that could expose you more to identity theft. But LifeLock monitors millions of data points per second. If your identity is stolen, our U.S.-based restoration specialists will fix it, guaranteed, or your money back. Don't face drained accounts, fraudulent loans, or financial losses alone. Get more holiday fun and less holiday worry with LifeLock. Save up to 40 % your first year. Visit lifelock.com slash podcast. Terms apply. Hey, everyone, and welcome back to the Rich Habits Podcast, a top five business podcast on Spotify.

0:35My name is Austin Hankwitz and I'm joined by my co-host Robert Croak. Robert is a seasoned entrepreneur in his 50s with more than 200 million in company exits under his belt. And I'm an entrepreneur in my late 20s with a background in finance and economics. Since quitting my full-time job in corporate finance a few years ago, I've built a seven-figure media business and actively advise some of the most well-known fintech companies around the world. As the show name might suggest, every episode, we talk about rich habits as they relate to business, finance, and mindset. However, we try and bring you two unique perspectives.

1:08One from an industry veteran, which is Robert, and the other myself, someone who's still in the process of building wealth and figuring it all out. Robert, what are we talking about in today's episode? In today's episode of the Rich Habits Podcast, we're going to be talking about the number one thing on everyone's mind. And no, it's not the presidential election. It is Bitcoin, Bitcoin, Bitcoin. Bitcoin has officially breached 60K. So many people said Bitcoin was dead a year and a half ago. Crypto is a scam. We had all of those same, same sentiments rolling around. But we stayed tried and true to Bitcoin.

1:45And here we are again heading into this bull market. And it is awesome. So as you know, we started encouraging our listeners to add Bitcoin to their portfolios last spring when it was half this price. So hopefully everyone took notes and took action because here we are again in a really great spot. So as Bitcoin begins to take center stage again, we think this is a great opportunity to talk about where Bitcoin fits inside of our investment portfolios, the volatility that it comes with the investment as well as our own individual exit strategies. Yeah, for some people, right? Bitcoin is a forever hold.

2:23I think Robert is one of those people. For others like me, it's a means to an end, right? I've got a goal of paying off my mortgage, hopefully one day with Bitcoin and other cryptocurrency. And for you listening right now, it might be something in between. So with that being said, let's talk about portfolio allocation. Yeah, we always talk about how important it is to build your base, which to us means that first 50 to 100K invested in those longstanding index funds we all know and love. However, once that base is built, we believe it's equally as important to diversify your investments into other asset classes.

2:57Some of those asset classes might mean real estate, income-focused covered call ETFs, and of course, Bitcoin. So today we want to cover what that looks like as a percentage of your investable assets and how to execute on that. Fidelity states for their clients that they believe an allocation of one to 3 % in Bitcoin is the right amount. And although I get that, I disagree somewhat for those of you that might be younger in your financial journey or have a higher risk tolerance. So for me, I personally feel that people could safely have five to 7 % just for Bitcoin and maybe have 10 to 12 % of their overall investable capital in cryptocurrency.

3:39Yeah, Robert, I'm largely on the same page, right? I've always thought people should have between 5 % and 15 % of their net worth invested into Bitcoin or cryptocurrency. Obviously, not a bunch of these like random little coins. I'm not sure if you guys have seen that documentary, This Is Not Financial Advice. You can go check it out on YouTube. I think it's like$2 or$3 to purchase it. But it's about the Dogecoin millionaire, Robert. I think back in 2021, right, this guy racked up$180 ,000 of debt to go put it all into Dogecoin. He wrote it all the way up to$3 million in value, didn't sell a dime of it, oh my God, and then wrote it all the way back down to like$180 ,000,$60 ,000, right?

4:18So we're not talking about these crazy random coins, at least myself, I'm talking about Bitcoin, right? I want to own Bitcoin. And the reason for this is something called asymmetric risk. So let's pretend you're one of those listeners that was able to dollar cost average into Bitcoin over the last year or so like we had planned for and talked about repeatedly. Perhaps your dollar cost average price is around the 30k range. The asymmetric risk here means that there's disproportionately more upside potential to that investment than downside in relation to the next best thing. Now, when I talk about the next best thing, when Robert talks about the next best thing, we're always talking about the stock market, right?

4:58That is our opportunity cost. If I invest into X, how does that return potential relate to what the stock market has done on average over history, right? 10%. So assuming that$30 ,000 purchase price, you would be up 100 % now at$60 ,000 per coin in less than a year with moderately higher risk profile, assuming proper portfolio allocation. I guess all I'm trying to say here, Robert, is that we've seen Bitcoin go from$20 ,000 to 60 ,000 in a very short period of time. And before that, it went from like 4 ,000 to 65 ,000 back in 2020 and 2021. And then even before that in 2017 and 2018, it went from like 1 ,000 to 20 ,000.

5:40So there's definitely a pattern here of immense upside potential. And I want to have that exposure inside of my portfolio. Yeah, I love it. And before we take on the next portion of this, I just want to touch on the movie because I think all of our listeners should watch that movie. It is a great testament that everything you shouldn't do and all of what we speak about, because it's just so crazy that he was able to take 180 ,000 of debt, turn it into$3 million. He should have at the very least taken 2 million off the table, put it in traditional investments and his life would have been set. But instead he wrote it down and down and the diamond hands and all of that stuff.

6:16And it was just crazy to me, but it was a great movie to watch, to tell people what not to do because you should always be taking profits along the way and have a thesis that's not based in emotion. You know, we're always talking about diversity. We're always talking about taking profits. It's all about understanding what you want out of that investment as you're making the investment. So speaking of building and diversifying our portfolios, our friends at Public recently launched their own podcast called The Rundown. So please check it out. It's a new rich habit you can work into your daily routine listening to The Rundown, Publix's new financial podcast.

6:55Yeah, it's actually hilarious because it's hosted by my friend Zaid Admani. He's a rock star content creator. And it's only five minutes long. You'll walk away getting caught up on which stocks are making the biggest moves, the economic stories that matter most in your portfolio, what's moving, what's up, what's down. I think they even talked about Robert Wendy's is now doing like surge prices, like how Uber has surge prices. Wendy's is now doing that with their cheeseburgers. I mean, it's just so funny, man, the stuff they talk about over there. So go check it out wherever you listen to podcasts.

7:21There's going to be a link in the description below here on Spotify to go give that a listen. Now, Robert, let's talk about volatility. I think what's important for any investor, especially if we think about the Dogecoin millionaire back in the day, he saw some big ups and some big downs. Every crypto investor, including Bitcoin owners like ourselves, are going to see big ups and big downs over the next 6, 12, 18 months with Bitcoin. So let's talk about volatility for a second. Yeah, I think volatility in Bitcoin and the crypto markets as a whole is the entire reason that adoption took so long to get these ETFs moving, to get legislation and get a blueprint for how we can move forward in blockchain and cryptocurrency.

8:01And I think that's one of the biggest reasons because traditional investors aren't used to that. They're used to some volatility, maybe a 10 % correction, a 5 % correction. But the swings in Bitcoin are much more severe. And I think that is one of the biggest reasons it has taken so long to get where we are today. So we can't really talk about Bitcoin without talking about volatility. So what is volatility? Volatility simply means the ups and downs that come with a specific investment. Think percentage of gains and losses. Over the last eight years, we've experienced two bull markets with Bitcoin, causing tremendous price action to the upside and the downside.

8:41And this is very, very important for everyone to understand because we saw Bitcoin peak at both 20K and 68K before falling 80 % in value in only a few short months. And this is the volatility we're talking about and why everyone needs to understand to not invest with emotion and have a long-term thesis and understanding of this so you don't get broken down emotionally when you see these large swings of volatility. Yeah, right. This is why we always discuss before making any investment, one, it always comes with risk. We always have risk with any investment we make at all, right? That's what investing is.

9:20And with that risk, we also have to understand how important it is to have an underlying thesis as to why we're making that investment, allowing us to take emotion out of the equation and ride the wave both up and down. Now, during the coming several months throughout 2024 and 2025, as Bitcoin and cryptocurrency as a whole continues to trend higher, you should prepare yourself for massive price swings, both to the upside and of course, to the downside. I mean, Robert, I wouldn't be surprised if we saw a 10 % swing in value in a single day now coming up. I think we even saw a couple of those last bull run.

9:53Yes, right now, Bitcoin is definitely overbought. And so with that, we could see one more pullback before the having. I know the having is inching near very, very quickly. We assume the having is going to be the 18th or the 20th of April, but we definitely could see another price swing. It could go down as low as maybe 38 to 42K, but who knows? There's so much momentum now that we kind of have to look at throwing the technicals out the window. I hate to say that, but we kind of do because there's such a big hype cycle right now leading into the halving and with the ETF approvals and all of that.

10:27So yeah, it's a crazy time for this. Well, speaking of crazy times, let's talk about having an exit strategy, right? Let's talk about we've got our money, it's up, it's down, it's whatever. How are we going to be approaching taking our profits and realizing these gains, right? Turning numbers on a phone or computer screen into money in our bank account. Yeah, my strategy is a little bit average price on Bitcoin. So moving forward into 24 and 25, I won't be taking any profits on Bitcoin until the 200K mark. And I know you get a little chuckle out of that, but that's just my thesis and where I'm at based on my overall profits in Bitcoin over the last decade, as well as where I believe Bitcoin is going to go.

11:11So when I talk about taking profits, that means I'm selling 20 % of my entire portfolio and letting the other 80 % ride all the way back down and up over the next three to six years. So for me, I will have Bitcoin in my forever portfolio. And I believe ultimately we could see a 500K Bitcoin over the next several years or decade. Yeah, I'm on the complete opposite side of the fence there, Robert. I did my waiting and writing. I don't want to wait another three, six, 10, 12 years. I plan on doing something called a ladder sell approach, which means I'll be selling 10, 15, maybe 20 % of my entire cryptocurrency portfolio, including Bitcoin, once Bitcoin hits very specific price targets I have for it.

11:56So that first one is$100 ,000. Then again, at$120 ,000, then$150 ,000, so on and so forth. And I plan to be entirely out of my position, hopefully, right? I can't predict the price of Bitcoin, but hopefully it continues to go up. I ladder out of my position and I'm totally out around 160, 170, maybe 180. I really don't know where it's going to go. Now, to me, it's really important to have specific, I'm going to sell numbers locked in and ready because things are going to feel euphoric. I don't know who here listening was around in 2018 or 2021, 2022 when we had some crazy straight up into the right Bitcoin price action, but it always feels like it can just keep going up.

12:38It just keeps going up and you don't want to sell. You want to make more money. It just feels euphoric. And by taking emotion out of the equation and giving yourself clear instructions and disciplined instructions to sell at this number, at this number, at this number, you won't find yourself like I found myself in 21 and 22 when I didn't sell, riding that wave all the way back down, looking back and saying, man, if I really sold like I was supposed to, or like I told myself I would, I would be able to have so much more money in real estate, so much more money in the stock market, so much more money in this or that.

13:11So I made that mistake. I encourage other people not to make the same mistakes I've made in the past. I will be selling my cryptocurrency. I will hopefully be making seven figures from that. And I will be putting that into other investments that are going to pay me straight passive income if that is through covered call ETFs, if that is through dividend paying ETFs or real estate or investing into cash flowing businesses. I want to take magic internet money, put it into my bank account and turn it into real money in the actual world, right? That is my plan. That's how I'm approaching this. And I encourage everyone to do the same thing.

13:43Well, that's what makes you a great investor. You have a thesis, you have a plan, you stick with the plan and you're very, very good at it. Now for me, there's a little more gambler inside of me. I can tell you a really funny story quickly. 2017, the euphoria was at an all-time high. I was at a cryptocurrency conference that was held at an exotic car dealership, which was really brilliant. The drinks were flowing. And I just remember we were counting down Ethereum to hit a thousand that day and Bitcoin was ripping and they had all of the exotic cars with price stickers based on the current prices of Bitcoin of how many Bitcoin it would take to get one of those cars.

14:21I pined for hours at that event because I had owned an Aston Martin DB9 convertible and I sold it and they had a newer one. It was a one-year-old model back then in 2017. And it was beautiful. And I was like, man, for 2.6 Bitcoin, I can just walk out of here with this car. And it would literally at that point would have cost me like $670 to own this hundred and some thousand dollar car, but I didn't do it. So I at least was strong in that aspect. But I remember that night I did sell 300 Ethereum at a thousand dollars. So I did stick with the plan there, but I love where you're at in your thought process.

14:59And I think it's so great for our listeners because again, if you stick with the plan, keep emotion out of it, you're going to be in a much better situation long run. Another strategy that's great for our listeners is selling your position based on incremental gains that you've predetermined. For example, when you get to a 20%, a 50%, a hundred percent return, whatever those numbers are for you that align with your risk tolerance and your thesis on that specific investment is another way to do what we say. And that is take money off the top and take profits and sell and have those incremental predetermined amounts based on gains.

15:37So that is another way to look at this and really give people a plan that they can stick with. 100%, right? And something else, you know, speaking of gains and capital gains, let's talk about taxes. I feel like a lot of people forget about that, right? So if you're selling your Bitcoin for a profit, if it's on public or Coinbase or Cash App or M1 Finance, wherever you're investing it, you need to set aside 20 % of your long-term capital gain profits for taxes and up to 35 % of your short-term capital gain profits for taxes. It's really important to understand the difference and to actually have this money ready when tax season comes.

16:13I think back to 2017, Bitcoin was up a bunch and people sold it and even 2021. And they're like, oh, nice. I got all this extra money. I'm going to go use it and then flip it into some NFTs or do this or that. And then they file their taxes in April. And it's like, oh, wait, I owe the IRS$60 ,000 in long-term capital gains. I don't have that kind of money. My NFTs are down. Now I got to sell at losses. I mean, it's a terrible situation. be disciplined, pull that money to the side, 20 % up to 35%, whatever your number is, go use a calculator, talk to a professional, whatever you got to do, and park it in a high yield savings account.

16:46Forget about it and let that money sit until Uncle Sam comes knocking and asking for it tax season the following year. Yeah. So many people forget. And it's shocking to me that when you're doing a buy and hold strategy and you have this thesis, it's great. But when you're buying and selling and trying to get in and get out and time the market all the time, they forget every time you sell, it's a taxable event. And if they're not considering that in the implications from a tax perspective, it's going to come back and bite them in the butt if they're not setting that money aside. So I always have to like spell that out to people to remember that, you know, you think you're timing the market, but you're forgetting that when you jump in and jump out and have all these panic buy and sells, it is a taxable event.

17:26You just need to be cognizant of that. I couldn't agree more, Robert. Well, everyone, please be careful with your Bitcoin. Be responsible with your Bitcoin. We are excited to see Bitcoin is rocking and rolling, just like we had talked about over the last year now. Cheers to that. And we are eager to see where Bitcoin takes us over the coming 6, 12, 18 months. But please have a plan, have a strategy, and don't make the mistake that I made, that Robert's made, that everyone's made in the past of thinking it's going to just keep going up and keep going up because you're going to find yourself in the red and say, dang, I wish I sold at this price or whatever, right?

18:00See, now this is what's so important too, Robert. And I want you to talk about this because I'm sure you've done this in the past, responsibly speaking, which is like, hey, I bought something for X. I made a 3X or 2X or 50 % return on it. I sold it because that was my disciplined sell. And even though that it went up another however many percentages, I still locked in my gains. I still feel good about that. Right. So do you have any examples of that, Robert, actually, before we flip to our next session? Yeah. I mean, you alluded to the movie with the Dogecoin guy, and that happens all the time.

18:31The number one thing, and I always equate it to a casino. If there were speakers all throughout the casino with microphones so you could hear what everyone is saying, I think the number one thing you would hear throughout all of those giant casinos is, I was. I was up 10K. Oh, my God. I was up 20K. And the biggest problem with that is, is not knowing when to get out. And that's why this episode is so important. I've had so many instances and it haunts me sometimes when I think that I sold 300 Ethereum at$1 ,000 a piece. My returns on that were in the thousands of percent because I believe my dollar cost average on those 300 Ethereum was like$42 each.

19:12So I look like a genius that day. We were sitting in the casino at the restaurant eating and I'm selling 300 Ethereum. But then when you look in the rear view mirror and you see it just goes up and up and up and now we're at 3 ,100 and it could be 10 grand. You can't do that. You have to lock in these gains based on your thesis when you got into the investment. When I bought my first Bitcoin at$7 and I sold a bunch of it. I think I sold my first hundred Bitcoin. I think it was at something like$400 or$700 or something like that. I look like an idiot now if you think about it, but no, not at all because because no one could have ever seen this coming.

19:50And I was so early buying Bitcoin that I thought I was a genius. I'm sitting there going, yes, I turned a$7 investment into a$700 investment, and I had a lot of it. So it really does come down to understanding that and sticking with it and taking the emotions out. And that's what makes you, Austin, such a great investor, because you go by the numbers. You don't look in the rear view mirror. And I struggle with that sometimes where I'm like, man, if I just had all that Bitcoin back, but I can't do that because of the return. It always comes down to understanding and looking at your ROI. If your return on investment meets or exceeds everything you desired for that investment, then you're crushing it.

20:31You can't look in the rearview mirror. It just won't help. I couldn't agree more, right? Take the magic internet money, lock in those profits, right? Take them from numbers on a computer screen to money in your bank account to then real estate, to index funds, or cash flowing businesses, something tangible that you can feel and touch. They're no longer magic internet money. It is now something that is actually tangible. You're invested into it. That's where we all want to go. And that's what I think is really important for people to understand for this episode. So before we jump into the question and answer segment, let's take a moment to hear from this episode's sponsor, Nios Investments.

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22:26A fund's income may decline when yields fall. Fixed income securities will decline in value because of an increase in interest rates. Now, Robert, I talked about this a little bit earlier, but man, I can't wait for the day when I get to transfer my Bitcoin profits and cryptocurrency profits into SPYI and QQQI and these other incredible ETFs that Neos Funds offers because I will be making passive income every month, like so much of it. It's going to be great. I'm going to be able to pay my mortgage. I'm going to be able to live my life, even maybe potentially retire early because of these ETFs.

22:59I am so, so excited to be the guy who can say, yeah, I turned my Bitcoin money into covered call ETFs that now pay me X amount of thousands per month. It's going to be awesome. Yeah, I love it. And now that we know you're not a boat person, I don't have to worry about you buying a bigger yacht than me from your Bitcoin profit. So I like that part. So yeah, I remember you were all excited saying we were going to do the Rich Habits podcast from a yacht. Once we get into this bull market, well, we're here. And it's like, now the question is, how big is this bull market? And hopefully everyone following along the Rich Habits podcast in our community is really just taking notes and taking action because the next 18 months theoretically should be the best 18 months in my lifetime and certainly yours to build wealth.

23:45So it's very, very exciting. And I'm so glad we have this platform and these tens and tens of thousands of listeners so we can give them just a little bit of a nudge every single week in the right direction to make sure that they're doing all the right things to build their own personal wealth. I love it. So our first question in our question and answer segment comes from Mark. Mark says, Hey, guys, I really like your philosophy of spending time in the market rather than trying to time the market. I'm 40 years old, and I started investing about five years ago. How long should I hold on to my stocks?

24:16Is selling my stocks ever part of the plan? Or is the idea to hold on to them forever throughout retirement? How long should I spend time in the market? Robert, I'm gonna take a stab at this one first. So when I think about investing, Mark, at least retirement investing for me, right with a Roth IRA, or a 401k, whatever that's going on for you there. But when I think about retirement investing, I'm thinking about, okay, I want to have a lot of money in retirement. Why do I want money in this retirement account? So when it's invested conservatively and responsibly into the stock market, I could earn a four, five, or 6 % annual return and live off of the interest, right?