It isn’t a good idea to invest in an asset that you don’t know how to cash out. Be it Bitcoin or traditional assets, it is always advised that one knows the ins and out for them to comfortably exit when required, and liquidate the asset either for hard cold cash or to other stable/volatile assets.
This guide will explain how a BTC holder can cash out (that is Bitcoin to cash or other cryptos) using the safest channel possible.
Rise of Bitcoin as an alternative to fiat
Bitcoin is a valuable digital asset. These coins remain largely unregulated or under-regulated in some jurisdictions. The coin flourishes on decentralization, unlike government-issued fiat.
For these exact reasons, some governments are against mining Bitcoin or trading cryptocurrencies like Bitcoin for cash. A prime example is China. In September 2017, cryptocurrency exchanges operating in mainland China facilitating the exchange of the Yuan for Bitcoin and vice versa were stopped on their tracks and told to either close shop or to shift locations.
A lucrative business at the right time, many crypto businesses chose to register in crypto supportive zones like Japan or Singapore. While the purge continued, Bitcoin and cryptocurrencies were pumping.
By December 2017, as the crypto market developed, BTC was trading at over $19,000 as altcoins surged to their highs. At these astronomical levels, some early adopters–but only those who were patient enough to hold their stash through the gyration were millionaires and even billionaires on paper.
They hadn’t sold their coins despite a lot of money entering the crypto ecosystem through initial coin offerings and FOMO—word quickly spread of the one-in-a-lifetime pump Bitcoin had gone through from Q2 2017, and everyone wanted a piece of the pie.
But without liquidation, it is incomprehensible how a Bitcoin miner or an investor will post profits or cover for operational expenses. Thing is, there must be a platform to buy and sell cryptocurrencies like Bitcoin.
In this case, cash (fiat) can change hands, or an investor can opt to exchange his/her Bitcoin for a different asset. Most of the time though, when Bitcoin is sold, people relate this to converting Bitcoins into cash—often the USD.
How to sell Bitcoin for cash
Bitcoin as an emerging system competes against an established financial system made up of banks and backed by governments.
Over time, billions have been pumped to steady the system and anything that competes against this interest is often taken as a threat to a government’s control of its monetary system and by extension, its economy.
The global economy is buttressed by a broad system that is viciously protected. Some leaders opine that Bitcoin and crypto—though promising a ton, don’t mean anything. President Trump has even said Bitcoin is backed by air as he protected the USD hegemony.
Therefore, buy Bitcoin or to convert cash for Bitcoins is usually very hard in some jurisdictions.
Businesses striving to setup such ramps are also rigorously vetted and subjected to a lot of stress tests, as regulators put in place safety measures to ensure close monitoring of participants as mandated by applicable laws.
Despite the challenges, it is still possible to cash Bitcoins or sell Bitcoins.
Often, this is how it is done:
Use a cryptocurrency exchange
A cryptocurrency exchange is a ramp where people can sign up whenever they want to sell or buy Bitcoin and other cryptocurrencies.
Some of the top cryptocurrency exchanges have been key market players for several years as they developed together with the overall market. Therefore, let`s take a look at some of them:
Binance – Currently, the largest crypto change by trading volume offers a 0.1 percent Maker/Taker fee, with a 25 percent discount if the fee is paid using native Binance Coin held on the exchange wallet. Additionally, further discounts are offered based on the total 30-day volume.
Bitfinex is one of the oldest exchanges and offers a 0.1 percent Maker and 0.2 percent taker fee. Taker discount is applied if using their native LEO token. Volume discount is available, starting from $500 thousand in volume over 30 days.
Coinbase Pro is among the most popular and largest crypto exchanges, with their stock recently launched on the regular stock market. Trade pricing starts from 0.5 percent maker and taker fee. Above 10 thousand in volume, the fee is further reduced.Huobi is in second place by total trading volume after Binance as it is one of the most popular options in Asia. The initial fee is set at 0.2 for both maker and taker, with reductions based on the amount of Huobi Token in your exchange wallet and 30-day volume.
However, not all support crypto-to-fiat or vice versa. Some like Coinbase support fiat purchases with a bank transfer option, while some as Binance Global don’t. There is even a platform that supports cashing out through a Credit card. Therefore, when searching for an exchange to sell Bitcoin for cash, it is ideal that one selects a ramp that supports Bitcoin to USD/EUR/JPY as a payment method.
Before proceeding, also note this:
Cryptocurrency exchange with fiat support is centralized. All coins held are under their control. The platform is the holder of all private keys. In case there is, say an injunction against the exchange banning their business operations, you will be the victim. Unless there is an insurance cover for your deposits, funds may end up disappearing from your wallet address.
Still, centralized cryptocurrency exchanges with fiat payment methods like directly connecting to a bank account have evolved. They are now more secure and despite a past stained with reputation-damaging hacks, security when selling Bitcoins has been significantly enhanced. All deposits are safely tucked in a multi-sig cold wallet.
Assuming you have done your due diligence–it doesn’t matter if it is time-consuming, picked out a reputable cryptocurrency exchange where you can sell your Bitcoin for cash, or other altcoins, here is what you need to do to get started whenever you want to sell:
- First, set up an account. Accounts are free and regardless of how reputable a crypto exchange is (at least at the time of writing), users can hop in without being charged a dime. A decent exchange will ask for personal details including which may include an email address, passport, a national identity card, a driver’s license, and other forms of recognized identifications.
This also includes a selfie photo just to make sure the person creating an account isn’t a robot. Thereafter, the address will be verified. If approved, a seller can connect the exchange’s USD/EUR/JPY—or any other supported fiat account, with their bank account (or their preferred payment method).
- Second, navigate to the deposit section of the exchange and select Bitcoin. Copy the receiving address and send coins from your other Bitcoin wallet. Within a few minutes—but can range to hours—your amount will reflect. Usually, the transaction is validated after about four to six confirmations. However, make sure that coins are sent to the correct address because if sent to the wrong address—or worse to a different chain, they will be lost forever.
- Third, with your coins received, account verified, and bank account/ Credit card linked, navigate to the buy/sale section of the exchange and place a sell order. The process is easy and even simplified for beginner traders. A client-facing exchange usually creates two channels for effecting these kinds of transactions. Bitcoin can be sold from a complex interface with limit and market orders, or directly through a simplified interface with a market order.
In this case, Bitcoin will be sold at market rates. In this mode, a trader is charged higher fees as a “Taker” who takes away liquidity from the exchange. If however, a limit order is chosen (for an experienced trader), a trader receives compensation whenever they place a limit order as a liquidity “maker.” When the sell order is placed and filled, USD/EUR/JPY is sent to respective wallets.
From there, a trader can withdraw to their verified accounts through their preferred channel like a bank transfer. In some exchanges, daily/weekly/monthly limits have been imposed. Therefore, a trader should check the amount of Bitcoin in his/her possession, compare this to the exchange’s bank transfer limit, before initiating a sale order. Other than imposed limits, a trader also ought to check withdrawal fees for a bank transfer and the minimum thresholds.
To stay competitive and attract users, an exchange often different charges for fiat withdrawals depending on the payment method chosen. Fees also come with what the exchange solves. If an exchange supports a selling option offered by a few others, it is obvious that they will charge a premium for their services.
This also depends on applicable rules and how stringent the regulator is on things like say bank transfers. In India, for instance, bank transfers were only allowed to do business with cryptocurrency exchanges back in March 2020.
Often, the time taken for the balance to reflect on your bank account will be anywhere between 4-5 working days in the United States, and 1-3 working days in Europe.
The above step explains how to sell Bitcoin for fiat payable through a verified bank account from an exchange’s Bitcoin wallet address.
What if a trader wants to sell your Bitcoin for other cryptocurrencies like Ethereum, Litecoin, or XRP?
The process is pretty simple. However, since these transactions are crypto-to-crypto, the number of exchanges supporting this conversion are numerous. Sometimes submission of personal information as part of KYC isn’t necessary.
Coincidentally—though some of them have complied with U.S. regulators and set up branches in the country, most operate in blockchain-supportive zones, offering a range of assets to crypto traders who want to buy and sell without restrictions. Before getting excited, it is best to check whether the platform is supported by the regulator and if they accept traders from the United States or China.
Though the number of coins on offer is limited, a cryptocurrency exchange operating in the United States can still offer options. If your due diligence points you back to the U.S., the procedure will be the same as above.
All you have to do is make a deposit to a wallet, identify a pair you want to swap coins with—say BTC/ETH, or BTC/LTC, and initiate a sell order to sell Bitcoin. If it is a market order, the transaction will be instantaneous. The number of purchased altcoins will be reflected in their respective wallet. If it was ETH, check the ETH wallet, Litecoin—check the LTC wallet, and so forth.
The above steps apply for small, manageable orders.
But what if the trader has in possession over one million Bitcoin and wants to sell at market price?
Because of slippage, the trader can’t simply initiate a trade on a crypto platform without the risk of front running. This will force prices lower causing massive losses especially if a block trade is posted. In this case, a trader can decide to do two things:
One, sell in small chunks to prevent market volatility and thus slippage,
Two, sell all these Bitcoins via an Over-the-Counter (OTC) desk.
The first option can take weeks depending on the number of coins and the liquidity depth of the platform. This, therefore, means if there are one million BTC to sell, and the Bitcoin market price is, say $10,000, a trader will receive $10 billion at best if the information of their liquidation isn’t leaked.
Because of front running (the exchange order book is transparent), prices will fall if these liquidations are constant. With lower prices come poor prices and therefore lower actual returns.
Use an Over-the-Counter (OTC) desk
To avert this, selling a large block of Bitcoin—most importantly from the prying eyes of speculators, a trader can initiate a sell trade from an OTC desk.
An OTC desk is a ramp that facilitates the buying and selling of large amounts of Bitcoin away from the conventional exchanges. They can also be regulated. Unlike centralized exchanges, selling Bitcoin through these platforms is cost-effective and simple. Often, most mainstream centralized exchanges have OTC offshoots for high Networth clients and institutions.
The operation of an OTC is simple. The desk links two willing parties. The buying party and the liquidating agent. Away from the supervision of centralized exchanges, most OTC customers are Bitcoin miners for good reasons.
OTC trading offers two things that HNWI and whales treasure: Liquidity and Anonymity.
Liquidity in that more can be sold without impacting the market since transactions are off the order book, and secondly, the level of anonymity found in OTC is unparalleled.
There may be paperwork but there are no daily/weekly/monthly limits often meant to hard press the trader to submit personal information.
When choosing an OTC desk, check their security ratings (reputation), related fees (static or flexible), and most crucially, if KYC and AML laws apply. OTC desks created by mainstream, regulated crypto exchanges demand the submission of personal information for every sell transaction but emerging desks often don’t comply with such.
Attractive as they may seem, OTC desks have their fair share of problems. It has been noted that crypto selling activity often spikes in OTC desks right after a high-level hack has occurred.
Therefore, while a trader may want to liquidate their share for cash or other coins, due diligence is highly recommended.
If a trader ends up purchasing tainted coins from a tagged wallet and under monitor by the community, not only will you likely end up clashing with lawmakers but there is virtually no way of making a bank transfer without being questioned.
Alternative methods of selling Bitcoin
If selling via an exchange or through an OTC desk doesn’t bode well, a trader can also opt to trade Bitcoin for cash or other coins directly with other sellers. This method has its risks but over the years, related processes have been streamlined.
Facilitating platforms, though centralized, have been forced to comply with relevant laws to first secure both traders and second to prevent money laundering or terrorist financing.
The FAFT rules have specifically shredded direct trading, limiting the number of payment options of leading peer-to-peer trading platforms.
Selling Bitcoin for cash usually through these alternative methods can be done as follows:
Using a Bitcoin ATM
They may look like traditional teller machines but they just aren’t. A typical Bitcoin ATM isn’t connected to your Bitcoin “account” but rather to the internet which makes it possible to track how coins are moved between addresses. The connection to the internet facilitates these transactions.
Depending on the ATM provider, selling Bitcoin for cash can be a little bit tasking. Some Bitcoin ATMs require registrations, scanning of a QR code, and different levels of KYC details at the end of which you won’t immediately receive funds but rather a redeemable code.
If the ATM dispenses cash, a trader usually has to wait until after the BTC transaction has been included in a block. Depending on the miner fee associated with that transaction and the state of the Bitcoin network, wait time can typically range from several minutes to half an hour.
Still, it is hard to locate Bitcoin ATMs which enables the selling of coins. Most allow traders to only buy BTC while simultaneously charging high fees and even requiring the submission of personal information like a working email address and more.
Use a Peer-to-Peer trading platform
The quest for diversity and sometimes traders avoiding submitting personal details is fanning the growth of peer-to-peer trading platforms.
Rules may apply especially for those operating in the United States or Europe, but there is no doubt that P2P platforms–especially in emerging economies like in India and Africa prefer these platforms.
Diverging away from how centralized exchanges work, P2P platforms don’t match orders and prices but instead match market participants. These are willing people who want to buy and sell Bitcoin with support for a wide variety of payment methods even including a bank transfer. As the selling party parts with their coins at a spot rate inclusive of fees, and the other receives coin and earns a profit.
This arrangement offers certain advantages over the closed-looped setup of centralized exchanges. First, there is diversity since several payment options are listed when selling. A trader can receive payment in their local currencies while guaranteed security because of the escrow feature used by these marketplaces.
With trades automated and small fees charged for executing trades, participants are connected without the need for a centralized authority. Under their terms, a trader can sell Bitcoin for a certain amount of fiat currency payable directly to a certain channel.
There is no trust and there are time limits upon which a trade must be executed and the transaction settled. The failure by either party to honor the agreement opens up a dispute which is then resolved by an arbiter all when the amount of Bitcoin held in escrow is secured.
Overly, P2P transactions are resistant to any form of government interference. However, there could be a problem with low numbers limiting the cashing out options for a trader seeking to exit the number at the fastest time possible.
If there is no payment option through which a trader can liquidate their coins, he/she can trade directly with a random person for cash with the option of cashing out to the bank.
Since there is no intermediation or an escrow account requiring trust, there are pertinent risks that call for heightened security. Still, this method is preferred for willing buyers and sellers of Bitcoin.
Often, these trades are effected via private chats like Telegram, WhatsApp, or even Facebook. Wherever there is a marketplace, the forum can facilitate the meeting of interested parties with one keen on buying Bitcoin while the other wants to sell.
To cap it up
Regardless of the chosen method, due diligence is important. With counterfeit cash, the seller can choose to invest in an ultra-violet counterfeit bill detector. This machine will pick out fake bills and prevent a trader from falling to traps. After all, it is wise to make informed choices and to prevent falling victim. Besides, if the buying party has any intention to buy Bitcoin to facilitate a crime, it is best to immediately cancel the trade.
Also, note to buy Bitcoin in the United States—or most of the G20 countries, and to cash out through any channel like say, a credit card or a bank transfer, is a taxable event. A person who often sells BTC for cash must therefore make sure he/she keeps track of his/her liquidation for them to be on the safe side with the tax collector.
As a lucrative industry, governments across the world are formulating laws to ensure compliance. The cryptocurrency scene has been zeroed in and increasingly, tax authorities are roping in fiat-supporting exchanges like the IRS deal with Coinbase, for ease of tracking those who want to buy Bitcoin and crypto, and sellers especially those cashing to their bank account.
However, there could be a reprieve as well. Bitcoin mining can be a tool to reduce a trader’s tax obligation especially if the seller is a miner who regularly disposes of large chunks of BTC to legally finance their operations.