At this stage in our series of articles explaining how to use cryptocurrency you should understand the options for safely storing your crypto in a wallet; how to send/receive as well as the function of an exchange and how to buy crypto. The final step in the basic transactional cycle for using crypto is understanding how to sell or convert cryptocurrency.
The world of cryptocurrency uses a lot of unique and colourful jargon. In many ways this is what makes it different, but can also be off-putting for newcomers.
The terms on/off-ramp are good examples; they simply refer to the process of moving in and out of crypto from your local currency, like getting on/off a motorway.
Just like driving, you need to be aware of what's going on as you look to sell your cryptocurrency and move the proceeds back into your bank account.
Logically the off-ramp process (selling) cryptocurrency should simply involve the reverse of the on-ramp (buying); unfortunately, it isn’t quite that simple.
We explain exactly why below, though be aware this article is focused on how to sell your cryptocurrency; the question of when is more complex and is covered in our section on how to trade cryptocurrency.
The fastest crypto on-ramp is using a credit/debit card because it combines the payment and purchase aspects into one familiar process. The problem is that the fastest route in, isn’t necessarily the fastest route out. Most Exchanges impose restrictions around withdrawing funds back to cards..
This shouldn’t necessarily stop you from choosing that route to buying, but you should be aware that when it comes time to sell and withdraw, the process might be more involved. Refer to the specific payment FAQs at your chosen exchange..
The one aspect of the off-ramp, that is the same as the on-ramp is that you’ll need to pay fees. Part of your decision-making process for choosing a crypto exchange should be thinking about how you intend to withdraw.
It may come as something of a shock, but in most countries the profit you make from buying and selling crypto is a taxable event. In the early days of crypto it was possible to fly below the tax radar, as authorities hadn’t quite worked out how to treat the nascent industry. Not so now.
With crypto entering the mainstream the taxman will expect a cut of your profits. You may choose to ride your luck and simply not report qualifying gains but many exchanges are being mandated to share customer details with tax authorities, leaving little wriggle room.
Before you start panicking, modest investing is unlikely to hit the taxable threshold, and on the plus side, you can offset losses against your tax bill. The implications will depend on where you live. Congratulations if you live in these crypto-friendly territories:
We look at the subject in more detail in an advanced article, but for now, have tax obligations at the back of your mind when thinking about selling cryptocurrency, and look for official resources or professional services if the amounts concerned warrant it. We list some in our resources section
Having highlighted the important considerations in advance we can now simply focus on the steps for selling cryptocurrency for fiat and withdrawing the balance.
We’re going to use selling bitcoin for euro as our example i.e BTC/EUR and assume that you want to sell at the current price - aka a Market Order. We explore different order options in our How to Trade section, but are keeping this selling/withdrawal process as simple as possible.
We are assuming that the Withdrawal process follows on directly after Selling. It also assumes that you have checked in advance the transaction time and fees associated with each available withdrawal method, and are comfortable with them.
Selling a cryptocurrency, like bitcoin, doesn’t necessarily mean exchanging it for fiat money. Exchanges will also allow you to exchange one cryptocurrency for another. We'll explain that scenario then the process for withdrawing cryptocurrency which we've already introduced when explaining how to send and receive crypto (earlier in this section).
Given the huge array of cryptocurrencies that now exist, and the need for enough buyers and sellers, most exchanges will only offer exchange pairs where there is the greatest demand.
This means you can generally sell your cryptocurrency for
But if you want to exchange crypto A for crypto B and there is no direct exchange available you can simply add an extra hop:
With those assumptions in mind let’s look at the steps for one of the most common crypto-to-crypto exchanges. Selling bitcoin for ethereum and then withdrawing the ethereum to a mobile wallet.
Depending on the Exchange or wallet used, you might find that you need to go through a Whitelisting process for the withdrawal address. This is a security feature that - if used - only allows withdrawals to addresses you have confirmed in advance.
It makes unauthorised withdrawals far less likely, but on the flip-side, adds a bit of friction to withdrawing if, for example, you want to use an address that you haven’t approved, as to provide that layer of security it normally involves a 24hr wait before a withdrawal address can be used.
It is assumed that this process follows on directly after Selling. It also assumes that you have checked in advance the Minimum Withdrawal threshold, transaction time and fees associated with withdrawal (in this case ETH) and are comfortable with them.
You’ve now gone full-circle in your journey learning how to use cryptocurrency. From downloading and setting up your first wallet, through learning its functions then buying your first cryptocurrency, and finally selling to turn your funds back to fiat, or converting to another cryptocurrency and moving off the exchange to your non-custodial mobile wallet.
You’ve learned a lot, but this is just the start of the wider journey to understand more about what using cryptocurrency really involves, behind the scenes,
So in the next lesson we’ll explore a transaction in detail to understand all the constituent parts, what they mean and why they are important to understanding how to use cryptocurrency.
Next step: Exploring TransactionsGo to next step