We all know it. Bitcoin and cryptocurrencies have seen a dramatic surge in popularity in the past few years, especially throughout 2017 and into 2018. The massive price increases combined with more scrutiny and interest from the financial community is making cryptocurrency conversations par for the course for most people.
How to Cash Out Cyptocurrencies: Introduction
Even though Bitcoin has dropped from its all-time highs near $20,000 it still remains 10x higher than it was just two years ago. How many investments do you know that return 1,000% in just two years?
With the huge increase in the price of Bitcoin and other cryptocurrencies there’s a subject now being discussed that wasn’t really appreciated when prices continued going higher and higher, and all people talked about was “hodling” their Bitcoin.
That subject is how to cash out bitcoin and other cryptocurrencies to fiat.
Now that prices have settled down, and the volatility is draining from cryptocurrency markets, people are diversifying back out of cryptocurrencies in some cases. Maybe taking some profits. But since withdrawing hasn’t been too common people are now looking for ways to convert cryptocurrencies to fiat while remaining secure and safe.
With that in mind I’ve put together the following article that discusses three methods for cashing out your Bitcoin or other cryptocurrency and turning it into fiat currency. These are generally considered to be the least costly and safest ways to move cryptocurrency into fiat currency.
How to Cash Out Cyptocurrencies: Fiat Currency Explained
In case you don’t know what I mean when I say “fiat currency” or simply “fiat” I’ll give a brief explanation.
Fiat currency is any currency issued by a government that has no physical asset backing it. Instead it is backed by the ability of the government to tax its citizens, or to sell debt instruments. So, rather than backing the currency with gold or silver, it is simply backed by the faith of the government. The value of fiat currencies is basically derived from supply and demand forces.
The big risk that comes from fiat currencies is inflation risk. This primarily comes from the government printing more and more of the fiat currency, causing all of the fiat currency in existence to have a lower value. This is exactly opposite of how most cryptocurrencies work.
With that out of the way let’s look at the three safest ways to cash out of Bitcoin and other cryptocurrencies and into fiat.
The most obvious, and the most popular method for exchanging cryptocurrencies for fiat currencies is cryptocurrency exchanges. They’re especially good if you’re not withdrawing large amounts, because there are a few that will let you do that without identity verification.
In most cases however you can expect to have to give up some form of government issued ID at a minimum to prove your identity and unlock the ability to withdraw more than a few hundred dollars worth of Bitcoin.The good aspect of cryptocurrency exchanges is that they are fairly easy to use, with the best being very intuitive and with a superior user interface.If you go the cryptocurrency exchange route the first thing you’ll do is register and confirm your account.
Once that’s taken care of you will need to link your account to a bank account, or a credit/debit card.Then transfer your Bitcoin from your wallet to the exchange.If you have some cryptocurrency other than Bitcoin to exchange you’ll need to be sure the cryptocurrency exchange works with the cryptocurrency you want to exchange. If not, you’ll either need to find a different exchange to either convert the cryptocurrency to fiat, or to convert it to Bitcoin so you can then sell the Bitcoin for fiat currency.
Once you make the exchange to fiat it could take anywhere from 10 minutes to several days to complete the transaction, depending on the exchange and the bank or credit/debit card being used.One of the most popular cryptocurrency exchanges is Coinbase. They are very safe, and very easy to use. If you want to know more read our Coinbase review.
If you’re used to the traditional banking and finance systems you’re going to find the fees at most cryptocurrency exchanges to be very affordable. But there are some disadvantages to cryptocurrency exchanges too. One is how slow the process can be to verify your identity and then to transfer from cryptocurrency into fiat currency and then to have the bank credit your account. At Coinbase a transfer can take up to 7 days.
Peer-to-Peer Services (LocalBitcoins, Paxful, etc.)
These peer-to-peer marketplaces have been increasing in popularity as they allow users to sell Bitcoin without any third-party interference, and more importantly they allow users to remain anonymous. These P2P marketplaces match users so they can buy and sell Bitcoin directly to each other.
In most cases P2P cryptocurrency services have some sort of escrow system in place for security, and they offer transparent fees, even if they are a bit more expensive when compared to cryptocurrency exchanges. But, at least there are no trust issues with the P2P marketplace.In the past it was necessary to meet in person when using P2P marketplaces, but that isn’t so common these days.
Instead payments are made via bank transfers or gift cards, and in some cases even through Paypal. It’s very convenient because there are literally dozens of payment methods.The one downside to using a P2P marketplace is the costs involved. The fees from the marketplace itself are small, but the sellers set their own prices for the Bitcoins they’re selling and in some cases this can be as much as 15% above market prices.
Bitcoin Prepaid Cards
This type of prepaid Bitcoin debit card has been around for some time, although many issuers have had some problems over the year due to banking laws and compliance issues. Many have been shutdown, but some have returned recently, having addressed compliance issues, and should be more reliable now.
Many people think that the prepaid Bitcoin card is the best way to move your cryptocurrencies to fiat currency.It’s simple enough to load the cards from your Bitcoin wallet, and once loaded they can be used the same as any Visa card – either paying for transactions or withdrawing funds from an ATM.The process for getting a card can take a couple weeks in some cases, and identity verification is a necessity. Two companies that are offering Bitcoin prepaid debit cards are Bitpay and Spectrocoin.
Bitcoin prepaid cards are extremely convenient, come with low and transparent fees, offer instant conversion of cryptocurrencies into fiat currencies, are accepted at POS systems worldwide, can offer instant access to cash via ATMs, and the virtual cards are free. The physical cards often come with a modest fee. Bitcoin prepaid cards aren’t accepted everywhere, so you’ll have to check if they’re available and accepted in your jurisdiction.
They also come with spending and withdrawal limits, so if you need $10,000 immediately a prepaid card isn’t the answer. The good news is these limits are generally increased over time. The ease of use has made these prepaid Bitcoin cards extremely popular and their return has been highly anticipated in the cryptocurrency community.
How to Cash Out Cyptocurrencies: Crypto Loans are the New Kid
Maybe you don’t actually want to sell your Bitcoin, but you need fiat currency for some expenses or to finance your business. Now you have that opportunity thanks to several companies that have begun to offer crypto loans. These companies will let you withdraw in fiat currency while using your cryptocurrencies as collateral.
This is how it works:
You deposit your cryptocurrency with them in a smart contract, and it is held there until you can pay the loan back. In return you receive fiat currency into your bank account. This works well for many people for two reasons:
- You don’t have to sell your cryptocurrency;
- You get fiat currency without creating a taxable event;
- You get a hedge against potential price increases in the value of your cryptocurrencies since you continue to own them.
Two of the most well known and oldest companies offering this service are Nexo.io and SALT Lending.
The Tax Man Cometh
Be warned that in most countries when you convert cryptocurrency to fiat currency you also create a taxable event. This means you need to declare the fiat currency as income or capital gains and pay any taxes owed under the laws of your country or jurisdiction. Each country has their own laws for determining the taxability of cryptocurrency gains.
There has been a lot of internet information spread regarding the tax status of cryptocurrencies, but the safest course of action is to speak with your accountant as soon as possible, and to put aside whatever amount you’ll need to cover the tax bill generated by cashing out of Bitcoin or other cryptocurrencies.
How to Cash Out Cyptocurrencies: Conclusion
I hop this guide to cashing out Bitcoin and other cryptocurrencies to fiat has been helpful to you. I do have one more suggestion for you and that is to do your own research into the method you choose, and the provider of the service. This is a bit time consuming, but it isn’t difficult. Visit the service providers website and read their terms, search out their fee structure and then search out client reviews online. This is the best way to be completely informed, while also keeping your personal info, coins and cash safe.
I’ve highlighted the best options for converting from cryptocurrency to fiat. These are known and trusted service providers. You may come across other service providers in your research, but always be wary of any service promising to exchange your cryptocurrency for fiat currency.
One final word of advice is to always use escrow if exchanging on a peer-to-peer platform. It’s usually inexpensive or even free and acts as a great safeguard in the event the other person is trying to scam you out of your coins.