What to know before rebalancing with bitcoin profits, advisor says

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Many investors are likely still deciding whether to stay in bitcoin or reduce their profits from the last bull run to new all-time highs.

So, after a strong year for bitcoin, it could be time for investors to weigh rebalancing their portfolio by shifting assets to align with other financial goals, according to financial experts.    

The price of the flagship digital currency sailed past $100,000 in early December and was still up more than 130% year-to-date, as of Dec. 18. 

Some investors now have large bitcoin allocations — and they could have a chance to “take some risk off the table,” said certified financial planner Douglas Boneparth, president of Bone Fide Wealth in New York.

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“The golden rule of ‘never invest more than you’re willing to lose’ comes into play, especially when we’re talking about speculative assets,” said Boneparth, who is also a member of CNBC’s Financial Advisor Council.

Before using bitcoin profits to buy other investments, you may consider using the gains to fund another financial goal, like retiring early or buying a home, he said.  

Decide on your ‘line in the sand’

There’s a different thought process if you want the money to stay invested, Boneparth said.

Typically, advisors pick an asset allocation, or mix of investments, based on a client’s goals, risk tolerance and timeline.

Often, there’s a “line in the sand” for the maximum percentages of a single asset, he said.  

Typically, Boneparth uses a maximum of 20% of a client’s “investable net worth,” which doesn’t include a home, before he starts trimming allocations of one holding.

‘There’s no free lunch’ with taxes

However, you could harvest crypto gains tax-free if you’re in the 0% long-term capital gains bracket for 2024, experts say.

For 2024, you’re eligible for the 0% rate with taxable income of $47,025 or less for single filers and $94,050 or less for married couples filing jointly. These amounts include any gains from crypto sales.

“That’s a very effective strategy if you’re in that bracket,” Andrew Gordon, a tax attorney, certified public accountant and president of Gordon Law Group, previously told CNBC.

The 0% capital gains bracket may be bigger than you expect because it’s based on taxable income, which you calculate by subtracting the greater of the standard or itemized deductions from your adjusted gross income.


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