TL;DR- you cash out your crypto on crypto exchanges like Binance or Coinbase that link to your bank account. Setting up an account on an exchange requires KYC, a lengthy verification process.
If you’ve been in crypto for more than a minute, you know that crypto can deliver some monstrous gains. Crypto can also deliver unfathomable losses. This is because the cryptocurrency asset class is so small and has tons of room to grow, and lacks the institutional investment to be stable. But the gains you earn won’t be much unless you can quickly withdraw into fiat currency into your account. Someday this may change- when you make crypto gains, you’ll be able to pay for stuff in cryptocurrency. Unfortunately, most businesses only accept fiat currency as payment for goods and services. By the way, fiat means “authoritative decree”. Fiat currencies are currencies made and managed by central banks. From an investing perspective, most of us think about our gains and losses in terms of fiat. We can’t help it.
Something you need to know is that exchanges need to know you. You will likely grow to hate is KYC. This stands for Know-Your-Customer. To operate in most countries, exchanges like Coinbase and Binance need to have full identity verification. This is so governments can make sure individuals are paying taxes on their gains. Taxes are the single largest expense we’ll ever pay in our lifetime. This is because they are everywhere, and the crypto space is no exception. Know-Your-Customer processes vary by country but usually require:
- Snapshot of your face/facial recognition
- Social Security/National Identification Number or equivalent
- Proof of address, usually snapshot of a recent utility bill
- Email verification
- Two-factor authentication (getting texted a code and entering it along with your password)
Given all this, it can feel more like you’re applying for a mortgage rather than opening an account. Although this may be painstaking, it’s necessary to experience the huge gains that crypto can deliver. You’ve got to take the bad with the good.
Link a bank account
The next thing you’ll need to do is make sure you have one of your bank accounts linked to one of the exchanges. Personally I have multiple checking accounts hooked up to multiple exchanges. It’s always a good idea to register with as many exchanges as possible. This way, you’ll be able to buy and sell whatever coin you want at a moment’s notice. In crypto, windows of opportunity are often small. Based on your signup location, your account will assign whatever local fiat currency applies. You’ll get paid out in Euros if you’re in the EU, or Australian Dollars if you’re in Australia, etc.
How long it takes to cash out
In my own experience Coinbase has had the fastest turnaround when I try to deposit funds back into my checking account. Sometimes it’s the same day if I withdraw the funds earlier in the day. This is with the free option of course- but there is a paid option where funds have instant withdraw and account credit. The fees are between two and three percent. Unless you’re in a huge crunch a.k.a. you’re stranded at the airport and can’t pay for your parking, I would recommend doing the free option and not paying the fee. The regular Coinbase is turnaround is fast enough.
Any exchanges registered in your location are required to provide tax documentation to you at the end of the year. This documentation will include information about the coins that you bought, including buy and sell prices. The form will have your profits or losses and the timeframe you held those cryptos. In the US, there are differences between ‘short term’ capital gains and ‘long term’ capital gains, with the former facing higher tax rates. Know that in some countries you are allowed to write off cryptocurrency losses. I’m not a financial or tax adviser, so I’ll stop there. Do some research about what your government allows you to write off in losses. In the US, these are called capital losses and you can write off as much as $3000 in cryptocurrency losses. This means that you will be taxed less on your regular day job income if you lost money in crypto! See, corrections aren’t all bad. Things get more complicated and harder to track if you’re moving your coins onto and out of a hardware wallet, however.
Keep your coins on a hardware wallet
When you own crypto on an exchange, all you have is an “I owe you” from the exchange for your crypto. You better hope that a) you’ll be able to liquidate when you need to and b) the exchange doesn’t get hacked. Personally I use exchanges only for buying and selling cryptos but not storing them. There are plenty of advantages to owning your own coins on a hardware wallet.
A word about profit-taking
If you’re up on your crypto (any amount) and you think the market is about to go down, don’t hesitate to take profits. There’s nothing wrong with earning money on your crypto and walking away. You can always buy back in later. If there’s one thing that crypto has proven it’s that it suffers corrections frequently when compared to traditional stock markets. This means that there will be another opportunity to buy in the future.
I explained in my piece about the Fear and Greed Index that timing the market is impossible. Even experts in technical analysis make their investing decisions based on historical probabilities. they are making educated guesses. With crypto, there will never be a ‘top’ or perfect sell moment- so you should sell when you feel comfortable with it. As always, only invest in crypto what you’re willing to lose. There’s always going to be plenty of FUD on the horizon, and people can get wrecked. There’s still plenty of reason to remain positive (I am positive every day) because crypto is only getting started with global adoption.