In the midst of this roller coaster bitcoin cycle, which is experiencing a bull rally following a steep bear “market correction,” it is likely that more than a few bitcoin investors have decided to jump out of the market. With the “high-risk” nature of this high-risk commodity on prominent display, some may have grown weary of the turbulence.
For those seeking to get off the roller coaster that is bitcoin, it is important to understand the mechanisms behind “cashing out.” What are the important considerations you must keep in mind when you sell bitcoin and how hard is it to convert your assets to fiat currency?
A Couple of Points of Clarification
First, a bit of clarification is in order. Bitcoin, in and of itself, has little value. Similarly to other commodities, such as diamonds, the inferred value of bitcoin does not come from the bitcoin itself, but from the demand for bitcoin. When bitcoin is in high demand, the price rises. When demand falls, so does its price. This demand is measured by the bitcoin exchange’s trading volume.
What this means is that you cannot expect to sell all of your bitcoin at a posted sell price. It is likely that, unless you are selling a very small amount, at least some of your bitcoin will sell under the posted ASK price. How much under is difficult to say; larger sell orders tend to have larger BUY-ASK spreads than smaller orders, with very large orders being capable of creating localized price recessions in an exchange.
Bitcoin can be cashed out to fiat currency or used to buy a different altcoin. Fiat currency is defined as a currency issued by a national bank or national authority that is backed by the faith and good will of that nation alone. The United States dollar, for example, is a fiat currency unit, while a United States treasury bond – which represents a part of the nation’s debt – is not.
There are three common ways to cash out your bitcoin. They are:
- Using an exchange.
- Using a peer-to-peer method.
- Using a bitcoin prepaid card.
The most common way to “cash out” is to create a sell order at an exchange. As the name suggests, it is a request for an exchange to put your bitcoin up for sale. This is not an automatic selling-off of your bitcoin; buyers must be found, a price must be agreed upon, and the transaction must be accepted.
Bitcoin is highly liquid at the time of this writing, meaning there are more buyers than there are sellers. This means that depending on the exchange and the size of the order, the entire sell order process can take a few minutes to a few hours to complete. What this also means is that the price per coin may fluctuate before the sale is completed, meaning that your sell price after the deal is completed may be less than what was anticipated when the deal began.
Some exchanges, like Coinbase, simplify the sell order process so that it can be completed in just a couple of screens. It should be noted, however, that traditionally, the easier the sell order process is, the more expensive the transaction fees are.
Another way to cash out your bitcoin is to find someone willing to buy it from you. You can find a local bitcoin enthusiast group using services like MeetUp.com. You can also find potential buyers through LocalBitcoins.com. There, you can set up an ad for free where you can define your own terms of sale.
Finally, you may want to consider a bitcoin prepaid card. These debit cards draw from your wallet and allow you to use your bitcoin the same as you would use a fiat currency-based bank product. This allows you to use bitcoin at most points-of-sale and ATMs. These cards remain some of the few bitcoin products still backed by the major banks.
Your bank may not be happy receiving payments from a bitcoin exchange. There have been reports of bitcoin traders having bank accounts closed because of suspected bitcoin activities. It is wise to check with your bank before cashing out any altcoin.
Additionally, you may be responsible for any tax liability occurred from the selling of your bitcoin. Make sure you take the time to understand any local and national tax laws that may apply to the selling of your assets.
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