Cryptocurrency is now a popular investment option for younger people but you can't exactly spend your crypto in order to pay for your dinner. Well, you can if you want to choose from a few limited options (as big businesses get on board) but for the most part, people still need to convert their crypto into cash. The good news is that this is very easy to do. Having said that, there are several factors an individual might want to consider before converting their cryptocurrency into cash. Digital tokens are extremely volatile and their values fluctuate a lot so if your timing is wrong you potentially stand to lose money. On the other hand, a risk-averse investor, seeing the uncertainty around digital currencies, might consider converting their digital money to fiat currency.
Either way, here's what you need to know about converting your cryptocurrency into cash. Just remember that if you cash out, then you will need to pay taxes on your profits — although crypto currently exists in a legal grey area in India, that's not to say that gains made from investing in this asset are outside the ambit of taxes.
Let's understand this by taking Bitcoin as an example of a cryptocurrency that you want to convert into cash. Remember to keep in mind that converting any cryptocurrency into cash will involve taxation as well an exchange fee that a third-party broker will levy depending on the number of digital tokens. Not to forget, a third-party broker may take a day or two to transfer the money to your bank account. Bitcoin price in India stood at Rs. 36.53 lakhs as of 10am IST on August 16.
Now let's come to converting cryptocurrency into cash. There are two ways of doing it.
This is similar to the currency exchange system at airports. Once you deposit your digital currency to exchange and request for withdrawal, the broker will transfer the money to your bank account.
However, since there are money laundering restrictions on brokers, you have to withdraw your money through the same bank account that you made a deposit with.
The biggest disadvantage with this method of conversion is the time it takes. Experts say it's safe and secure, but it takes time for the money to reflect in your bank account. The exchange also charges a fee for the transaction, and it varies from broker to broker and country to country.
Considered a quicker and more anonymous method, an individual can use a peer-to-peer platform to convert their digital currency into cash by simply selling it. The other advantages include a smaller fee and the possibility of a better exchange rate compared to a third-party brokerage. Having said that, you have got to be careful of fraudsters.
It's recommended that you ask for proof of ID and payment before releasing your cryptocurrency.
You can also use a peer-to-peer platform that keeps your digital tokens locked until your bank account is credited with the money.