June 9, 2022
Since the launch of Bitcoin in 2009, the cryptocurrency market has exploded. It’s estimated that 300 million people worldwide now own some form of cryptocurrency, 27.5 million in the USA alone. Alongside this is an upward trend in the number of different tokens available — with over 10 000 as of 2022.
If you’ve been thinking about getting in on this, maybe as an investment or perhaps as a secure way of conducting online transactions, there are probably a few questions you would like answered. Notably, how do I sell my cryptocurrency if I decide to cash in my investment?
Methods of Selling Cryptocurrency
There are several ways to sell your cryptocurrency, each with its advantages and drawbacks, but here are the three most common.
This is an option that applies primarily to Bitcoin transactions, as Bitcoin ATMs are the most widely available. Crypto ATMs connect to the internet and will either pay out cash immediately or send you a redemption code.
However, there are several drawbacks to this method. For example, most Bitcoin ATMs only give the option to buy Bitcoin, with 23% offering solely a withdrawal facility. Additionally, the fees are usually relatively high, and some states and countries have banned crypto ATMs outright due to money laundering issues.
Direct Person-to-Person Trades (P2P)
You can also sell your cryptocurrency by setting up a trade directly with another person or entity, either in person or online.
Face-to-face transactions can be accomplished by meeting someone and setting up a transfer of your cryptocurrency while receiving cash for it. This does require an understanding of how to send Bitcoin and use a wallet, as well as knowledge of current exchange rates. You should also exercise caution with this method, as you would in any financial exchange with a stranger.
In some parts of the world, places exist to facilitate this kind of transaction in safety. However, other areas also restrict this due to concerns over mugging and money laundering.
The safest way to do a P2P transaction is online on one of the platforms set up expressly for this purpose. These platforms usually offer escrow functions to provide additional security and ensure a smooth transition of assets. They typically work by buyers posting offers showing which currency they are offering and at what price. Sellers then complete the transaction by clicking on it and following the platform’s instructions.
Cryptocurrency exchanges are the most common way for holders to sell their tokens. They function in a similar way to P2P exchanges but instead of the seller manually selecting an individual sale, an automated engine links your offer to someone wishing to buy. As a result, there is no direct contact between buyer and seller, and you don’t know to whom your cryptocurrency is finally sold.
Using a cryptocurrency exchange first involves setting up an account. Quite often, reputable platforms will require some form of identification for this, and you also need to link a bank account for withdrawing the proceeds of your sales. However, before signing up for one, you should check its terms, as some exchanges ban trades from people in certain territories.
Once your account is set up, you need to transfer your cryptocurrency to an associated wallet on the account. After that, you simply use the market section of the app to create a sell order. To do this, you need to enter the type of cryptocurrency, the amount you have, and the price you want to sell at. Once someone matches your order, the exchange will automatically complete your order. After that, it’s just a matter of withdrawing your cash to the bank account you linked.
It’s best to bear in mind that this is a very simplified guide to selling cryptocurrency, and you should thoroughly research how your exchange works, as well as its particular terms and conditions.
When Should I Sell My Cryptocurrency?
There are no specific rules on the best time to sell your cryptocurrency. In general, buying when the price is low and selling when it’s high is ideal. However, predicting these circumstances is extremely difficult in practice. Therefore, a good piece of advice is not to panic if the price is dropping a little, especially if you are reasonably sure it’s going to gain in the long term.
If you are buying crypto as an investment, it’s essential to do your homework first. With over 10,000 in circulation, it’s pretty certain that some are going to be poor investments, and others will provide handsome returns. Select a price you are happy to buy at, decide on the price you want to sell at, and hold fast until that price is met. Holding out for even higher returns can often get people burned!
Do I Need To Notify the IRS if I Sell Cryptocurrency?
The answer to this is most certainly yes. In 2014, the IRS issued Notice 2014-21, 2014-16 I.R.B. 938, which explicitly states that cryptocurrency (under the umbrella term of “virtual currency”) is treated as property for Federal income tax purposes. Therefore, you are obligated to record any profit or loss you made on the sale.
If you sold a year or less after buying your crypto coins, this is registered as a short-term capital gains profit or loss. Any longer than this and it will be recorded as a long-term capital gains profit or loss. You also need to register any cryptocurrency received as payment for goods or services as income.
How Do I Avoid Scams When Selling Cryptocurrency?
With the vast sums of money now being processed through cryptocurrency transactions, it has become a target for scammers and fraudsters. Therefore, you should always take care when selling cryptocurrency to ensure that you are engaging in a legitimate transaction. Here are a few essential tips:
- Keep your wallet protected. Always ensure your keys are private; if someone asks you to share them, it’s a scam.
- Don’t respond to cold calls. If you get a call about a crypto opportunity that sounds too good to be true, it probably is. Almost all crypto cold calls are scams.
- Take your time. Check every aspect of your sale, from the reputation of the exchange to its history of security. If someone tries to rush you into a deal, that’s a red flag.
- Don’t click on social media adverts. Scammers love social media! It’s a cheap and easy way to reach a lot of people, and they often fraudulently use pictures of high-profile people to convince you they’re legitimate.
Can I Trade for a Different Cryptocurrency Instead of Selling it?
Yes, you can. Cryptocurrency exchanges are a good way of doing this, and they can be a good way of finding better investment opportunities or getting the benefits of holding a particular token. For example, if the coin you are holding seems to be volatile, you can exchange it for a stablecoin. Stablecoins are pegged to a real-world asset (the USD, for example). Their value remains stable, protecting your investment from the regular storms that afflict the oceans of cryptocurrency markets.