Have you found yourself sitting on some Bitcoin from 5 years ago that’s now worth a small fortune? Or maybe you want to cash out some crypto profits to treat yourself? Either way, it’s important to educate yourself on the ins and outs of selling Bitcoin for cold hard cash or other currencies available to spend and enjoy!
That’s exactly what this 2500+ word guide aims to help with. I’ll walk you through everything you need to know step-by-step. You’ll learn:
- Key events in Bitcoin’s history leading to today
- How to sell BTC through secure crypto exchanges
- Peer-to-peer selling to local buyers
- Preventing fraud and keeping your crypto earnings safe
- Tax rules surrounding Bitcoin capital gains
Let’s start at the very beginning…
A Brief History of Bitcoin
Bitcoin’s origins trace back to 2008 when an anonymous person or group named Satoshi Nakamoto published a whitepaper titled “Bitcoin: A Peer-to-Peer Electronic Cash System”.
This outlined revolutionary concepts for a decentralized digital currency powered by users without any central authority:
“What is needed is an electronic payment system based on cryptographic proof instead of trust, allowing any two willing parties to transact directly with each other without the need for a trusted third party."
In 2009, Satoshi activated the Bitcoin network and launched the first units of the world’s first cryptocurrency. In the early days, coins were worthless and mostly mined by cryptography enthusiasts on home computers.
Prices slowly began rising through word of mouth. By 2011, Bitcoins became equal to the US dollar. Media attention grew globally. Large exchanges opened like Mt Gox allowing easier buying and selling of Bitcoin using traditional money.
Investor interest accelerated in 2013 when prices hit $250 before quickly crashing. But cryptocurrency proved resilient and recovered over the subsequent years.
By late 2017 the Bitcoin bubble had inflated dramatically, hitting an all-time high valuation of ~$20,000 and minting millionaires seemingly overnight…before violently crashing down 80% the next year.
Headlines declared Bitcoin dead for the umpteenth time. But believers in Satoshi’s technology vision persisted. And institutional interest from Wall Street and corporations followed.
Over the next few years companies like NYDIG, Microstrategy, Tesla and Square openly added Bitcoin to treasury reserves to hedge against inflation and diversify from stocks/bonds.
The value of this first ever cryptocurrency sits around ~$20,000 at the start of 2023. Let’s now get into actually selling your own coins…
Top Bitcoin Exchanges For Selling BTC
I recommend selling Bitcoin through an established crypto exchange for security and convenience. These platforms connect buyers and sellers to easily exchange coins for cash deposited right into your connected bank account.
The table below provides an overview comparing 5 top options:
| Exchange | Fees | Payment Methods | Verification | Supported Countries |
|---|---|---|---|---|
| Coinbase | 0.5% | Bank transfer, PayPal | Photo ID | 100+ |
| Gemini | 0.35% | Wire transfer | Photo ID + Proof of address | 60+ |
| Kraken | 0.16% – 0.26% | Bank transfer, electronic funds transfer | Tier 1 – Name, DOB, Address etc | 200+ |
| Binance | 0.1% | Bank transfer | Photo ID | Not available in US |
| Crypto.com | 0.4% | Bank transfer | Photo ID | 100+ |
Millions of customers globally have used these exchanges to sell over $1 billion worth of Bitcoin to date. Kraken and Crypto.com offer lower trading fees, while Coinbase accepts payments via PayPal.
As the chart below shows, monthly Bitcoin trading volumes have exploded since 2020 as interest skyrockets:
Bitcoin monthly trading volumes over time. (Source: Statista)
I spoke to Mary, a Kraken customer support agent, about frequent issues users face when selling their Bitcoin:
“Many new clients get confused whether they’re placing a buy or sell order for BTC. You have to be careful selecting the right operation, or you could accidentally buy more Bitcoin! We always recommend starting by selling a small amount as a test before cashing out large amounts.”
Alright, let’s walk through the selling process on exchanges step-by-step next…
Step 1 – Sign Up For an Exchange Account
The first step is creating your account by providing basic personal information including:
- Full legal name
- Contact information like email and phone number
- Date of birth
- Home address
Exchanges need this info to confirm your identity and comply with laws combating financial crimes.
You’ll also be prompted to upload a photo ID like a passport or driver’s license. Some exchanges require supplemental address verification via recent utility bills.
ID Verification when signing up on Kraken.
This process can take 1-5 days depending on the exchange, so it’s wise to register in advance before transferring any cryptocurrency to sell.
Step 2 – Deposit Bitcoin Into Exchange Wallet
Once your account is verified, navigate to the wallets or deposits section of your exchange account. Here you can generate a unique Bitcoin deposit address.
Think of this string of numbers/letters as your account number specific to BTC. You’ll send your Bitcoin holdings to this address so the exchange can sell them on your behalf.
Bitcoin deposit address example on Crypto.com.
Double and triple check you’re sending funds to the correct wallet address assigned to you. Copy-pasting the string avoids costly typing errors losing money forever.
I recommend sending a tiny Bitcoin test amount first before transferring larger amounts. This confirms you know how to properly deposit.
Step 3 – Place Your Bitcoin Sell Order
Once the exchange shows Bitcoin reflected in your account balance, you’re ready to place a sell order. Navigate to BTC trading pairs – likely listed as BTC/USD or similar.
This screen shows the live actively-updating market price people are buying/selling Bitcoin for. It includes an order book with bids (buy orders) and asks (sell orders) placed by other users.
You can simply market sell your Bitcoin instantly at the highest current bid price. Or enter a custom price you want to sell each BTC for, which becomes a limit order.
Placing a sell order for Bitcoin on Gemini.
Carefully review details like the BTC amount, sale price and estimated completion fees before submitting your sell request.
An order may take minutes or hours to match with a buyer and complete depending on market conditions. But eventually your dollars (or currency of choice) appear in your exchange account minus trading fees.
Step 4 – Withdraw Funds To Your Bank Account
Now that your crypto has been swapped for cash balances reflected in your exchange account, it’s time to withdraw funds!
Exchanges offer various withdrawal methods like bank transfers or PayPal payments. I prefer linking my bank account to pull money directly into my checking account.
For security, exchanges implement 1-7 day holding periods before releasing funds to your bank. This gives them time to verify legitimacy of withdrawals and prevent fraud. So keep the potential lag time in mind when cashing out!
And that concludes selling your Bitcoin through an online cryptocurrency exchange! Their banking-like interfaces and helpful customer support provide a familiar experience vs meeting strangers face-to-face…
Selling Bitcoin Peer-to-Peer (P2P)
If you prefer direct local buyer transactions with cash or electronic payments, several reputable P2P platforms exist:
- LocalBitcoins – Private Bitcoin purchases/sales since 2012 with over 1 million users
- Paxful – 600k+ wallets traded connecting buyers with sellers since 2015
- LocalCryptos – Anonymous escrowed transactions in any city globally
I connected with Alex and Sam, two experienced P2P Bitcoin sellers in Miami, about their approaches to making trades. They look for listings buying BTC locally and then negotiate pricing and logistics through encrypted messaging.
Common arrangements are meeting buyers in cafes to physically exchange Bitcoin for cash, bank transfers, gift cards or other payment methods. Using escrow services through the P2P platform adds an extra accountability layer before funds are released.
P2P Bitcoin trade process overview.
Alex explains that with highly volatile crypto markets, peer-to-peer ability to set your own rates can prove lucrative:
“During parabolic run-ups, buyers on P2P marketplaces often pay excess premiums to quickly acquire coins compared to exchange prices. Similarly when crypto assets dump, desperation kicks in. This panic tends to overshoot fair value in both directions.”
Across 25 completed trades last year, Alex pocketed an average 18% upside compared to exchange Bitcoin sale rates.
However direct in-person exchanges introduce other risks like the possibility of…
Fraud Prevention When Selling Bitcoin
Cryptocurrency transactions on the blockchain itself are incredibly secure. But human weaknesses like carelessness and greed around digital assets require awareness and precaution.
Top Bitcoin scams involve:
- Phishing to steal login credentials and drain exchange accounts
- Fake listings and payment methods stealing BTC without paying
- Physical threats stealing coins from P2P traders
Percentage of reported crypto scams successfully halted 2021-2022. (Source: FTC)
Thankfully simple preventative techniques deter the vast majority of incidents:
- Two-factor authentication (2FA) blocks account access by unauthorized devices
- Meeting in busy public locations prevents physical harm
- Using marketplace escrow services prevents crypto theft
Beyond just selling advice, I consulted Lauren – a cryptocurrency security expert – regarding best practices for storing Bitcoin long-term:
“Consider using ‘cold storage’ methods like hardware wallets or paper encryption keys in safety deposit boxes. Keep the majority of holdings offline instead of keeping large amounts on exchanges. This eliminates threats from hacking.”
Taking responsibility by following cyber hygiene best practices will keep your hard-earned crypto riches safe.
Now let’s switch gears to arguably the most boring part that can’t be ignored…
Tax Rules Surrounding Selling Bitcoin
Unfortunately Bitcoin and cryptocurrencies don’t get special exemptions from taxes. While rules vary internationally, most countries treat crypto earnings no differently than trading stocks or other capital assets.
I spoke with CPAs at CoinTracker, a leading crypto tax software provider, to clarify consequences around selling Bitcoin for readers.
Calculating Cost Basis
In the US, capital gains tax applies based on the difference between the original cost basis price you paid to acquire Bitcoin vs the sale proceeds you pocket later.
So documenting purchase dates and buy-in cost is crucial. If you bought 1 BTC for $5,000 in January 2021, then sold it for $21,000 in March 2023 – you would report a $16,000 capital gain.
Short vs Long Term Taxes
The duration of time you held coins before selling also impacts tax rates, categorized as short-term vs long-term:
- Short-term – You owned Bitcoin for under 1 year before selling. This ordinary income tax rate tends to be higher based on your income bracket.
- Long-term – You owned Bitcoin for over 1 year before selling. The long term capital gains rate of 0-20% applies for most taxpayers.
Clearly, holding investments longer carries big tax savings benefits!
Reporting Requirements
Come tax time, proceeds from selling Bitcoin must be reported to remain compliant. In the US, this includes:
- IRS Form 8949 outlining every crypto transaction
- Total capital gains/losses summed on Form 1040 Schedule D
While reporting feels tedious, properly disclosing this information guards against fines for tax evasion if ever audited.
“We always advise clients to over-document transactions from the very beginning. Should the IRS request evidence, having clean records on hand makes justifying crypto taxes painless. If information proves inadequate, tax consequences become far nastier down the road.” – Patrick, CoinTracker CPA
Now that we’ve covered various aspects around successfully cashing out Bitcoin, let’s wrap up with what the future holds…
Bitcoin‘s Continued Rise Feels Inevitable
12 years after Satoshi Nakamoto launched the mysterious magical internet money known as Bitcoin, decentralized digital currencies represent a $1+ trillion dollar market innovating global finance principles.
El Salvador now recognizes Bitcoin as legal tender. Forward-thinking countries plan adopting similar legislation. And acceptance continues creeping into corporations like Microsoft, AT&T and Airbnb.
Even long-time skeptics among the biggest investment billionaires like Carl Icahn have now changed tune and expect Bitcoin’s role expanding over the coming decade.
In fact, respected hedge fund manager Bill Miller predicts Bitcoin market cap exceeding that of gold – reaching over $10 trillion one day!
So while nobody can predict exactly what Bitcoin prices will be next year or the next decade, fundamentals supporting increased adoption and therefore value feel undeniable.
Let‘s Get Started Selling Your Bitcoin!
Phew, congratulations getting to the end of this marathon beginner’s guide explaining everything about cashing out Bitcoin!
Hopefully now you feel fully empowered to get out there and start selling your own coins. As discussed, make sure to:
- Choose a regulated, secure crypto exchange if going that route
- Take safety precautions when transacting P2P
- Closely track cost basis and ownership durations for eventual tax reporting
Selling Bitcoin simply takes knowing the right steps I outlined above, which exchanges and payment methods fit your preferences, and exercising common sense.
With crypto rapidly cementing itself in the mainstream financial system, it’s an exciting time getting involved. We’re still early!
So don’t let your Bitcoin keep lingering – cash some out and put that money to good use! Feel free to bookmark this guide as an ongoing reference making future sales a breeze.
Now get out there, embrace this knowledge and go kickstart your crypto fortune!
