So you have some Bitcoin and you're ready to sell it back into good old fashioned US Dollars (or whatever fiat currency is recognized by your country)? If you read our how to buy bitcoin guide then you probably already have all the tools and knowledge you need to make this happen. However, depending on the laws and regulations in your country, there may be some essential things you need to know.
This guide should serve as a tool for you to learn how to sell bitcoin online for US Dollars (USD) or just use it to fund your paypal account. This guide is written for people living in the United States (since that's where I live) so you should check into the specific situation in your country.
This is not going to be some boring long explanation of bitcoin, cryptocurrency, blockchain technology or anything like that. What we want to focus on here is what is bitcoin from a true "currency" perspective. In the United States, there is the concept of legal tender. Legal tender is defined in Section 5103 of title 31, United States Code, which reads:
United States coins and currency (including Federal reserve notes and circulating notes of Federal reserve banks and national banks) are legal tender for all debts, public charges, taxes, and dues. Foreign gold or silver coins are not legal tender for debts.
Now, let me start by saying, I'm not a tax attorney and I'm not giving tax advice. I am giving information based on what I've read. However, according to the above definition, Bitcoin is not considered legal tender in the United States. It is considered "personal property" and is taxed as such. This means that when you sell Bitcoin for USD, you must pay capital gains tax on the amount of money you receive over and above what you purchased. So if you buy $100 USD worth of Bitcoin and sell Bitcoin and get $200 USD, you must pay taxes on the $100 USD you gained as a result of that transaction. How much you pay depends on how long you hold the property.
If you want to make sure you fully are compliant with US law and regulations, I recommend the book The Ultimate Bitcoin Business Guide For Entrepreneurs & Business Advisors by Kirk Phillips.
Short selling bitcoin is more of a trading concept but we'll cover it briefly here. When you short sell bitcoin you are temporarily giving back the Bitcoin you own for USD because you believe the price is going to fall and you want to buy it back at a cheaper price. I use Coinbase exclusively because it does everything I need and gives me detailed tax reports at the end of the year. When you use coinbase, you can sell your Bitcoin but not send it back to your bank account. You can place it in a special USD wallet in the Coinbase website. This will give you the ability to sell Bitcoin instantly and buy it back when the price is more favorable.
OK so now you've decided you want to cash out your Bitcoin and reap the profits. Going back to Coinbase again, I simply do a "Sell" in Coinbase and pick the destination for my money. With Coinbase, I can deposit money to my Coinbase USD wallet (as explained above) or I can provide my Paypal account information or the routing number and account number from my physical bank account. Once I have provided that information, Coinbase will sell my Bitcoin and deposit the proceeds in the account I want.
Whether you decide to use Coinbase or not, most exchanges have limits on how much you can withdraw in a particular week. If you want to request an increase in the amount of Bitcoin you can withdraw, you may have to provide additional forms of verification (photo ID, utility bill, etc.) this can vary from exchange to exchange so check the requirements for the exchange you are using.
Online exchanges are great for selling bitcoin instantly but if anonymity is most important to you, you will need to look at a P2P exchange like LocalBitcoins.com if you want to sell your Bitcoins. This exchange connects buyers with sellers and allows people to sell their bitcoin at a price above the market value. Typically these transactions require face to face interaction so make sure when you do this, you are meeting someone in a public location with lots of foot traffic. In addition, I recommend you bring someone with you for your own personal protection.
ATM's are an up and coming technology in the United States. Found primarily in Eastern countries like Asia, Singapore and Japan, some ATM models will allow you to sell your bitcoin for cash right at the ATM. They will present a QR code on the display screen which you can scan with your smartphone. Once the money has been confirmed, you can withdraw physical cash from the ATM. Please note that most Bitcoin ATMs charge anywhere from 3-8% for this convenience.