Bitcoin had a phenomenal 2017, reaching a series of all-time-highs in November and December, as traders began to take the cryptocurrency seriously.
If you had bought one bitcoin for £250 in 2014, it would have been worth £11,450.20 by 1 January 2018 . But before you start shopping for yachts, there are a few things to consider.
Converting bitcoin into cash in the UK can be surprisingly complex, and very expensive.
First, you need to access your bitcoin wallet. If you bought bitcoin before 2017, your money is likely being held in a wallet created by a company called Blockchain, although there are a number of different e-wallets which investors can use.
These crypto-currency exchanges can make their money by charging a withdrawal fee. For instance, Coinfloor charges a flat rate of either £10 or 0.0005 bitcoins for every transaction – approximately £5.50 as of January 2018.
Etoro charges a flat fee of $25 (£18.43) per transaction, while Kraken charges 0.001 bitcoin (approximately £10, as of January 2018), and Coinbase issues a conversion fee of 1.49 per cent if you want to withdraw your bitcoins in GBP.
Furthermore, investors may have to wait up to five working days to see the currency leave their e-wallet and arrive in their bank account.
As any bitcoin-watcher knows, a lot can happen in five days. This is a highly volatile investment, so there is a risk that by the time you have completed the withdrawal process, your cryptocurrency will have devalued significantly.
Next, you will have to arrange to sell your bitcoin on the general market.
Luckily, there are a number of brokers who can do this for you…at a price.
Bitcoin brokers and exchanges typically charge between 0.1 per cent and 0.25 per cent on any trade, although some brokers have been known to bill customers up to 7.85 per cent , per trade.
The value of the trade fees will vary depending on the amount of bitcoin that you want to sell, and whether or not you want to receive payment in another cryptocurrency, or sterling.
You can avoid these fees by selling directly on the open market, but this too comes with some risk.
This is an unregulated marketplace, so you could wind up selling your cryptocurrency to criminals, where it will be used to fund illegal activities on the dark web. In the worst-case scenario, your money could simply be stolen by opportunistic hackers.
So always make sure you are using the full security features and are using a trustworthy site. Some of the major exchanges serving the UK are Coinbase, Coinfloor, GDAX, Localbitcoins, Bittylicious and Bitbargain.
Best Fixed Rate Accounts for Your Cash
How to save money when converting bitcoin to cash
1. Find a direct buyer
There is a huge demand for bitcoin at the moment, so you may find it easier to sell your bitcoin directly to a buyer. Ideally, this will be someone who you can meet in real life, to reduce the risk of fraud.
There are a few Bitcoin Exchanges in the UK, where sellers and buyers can meet in person, and an independent clerk supervises the currency exchange. Online communities such as LocalBitcoins can help connect buyers and sellers from around the world.
2. Sell it on a peer to peer exchange
This is a great way of saving money on conversion fees, but it does come with some risk. These exchanges are not regulated, and most are decentralised, which means that there’s little that you can do if you feel like you’ve been ripped off.
However, when they work properly, they offer a quick, cheap and accessible service for bitcoin buyers and sellers across the world. Research sites before you sign up, and always read the terms and conditions so you know how much protection you will have if anything goes wrong.
3. Use it to buy things
More and more companies are starting to accept bitcoin as an acceptable currency, so you could buy anything from your morning coffee, to in-app purchases using your bitcoin account.
On a larger scale, some US realtors have started to accept bitcoin payment for house purchases, while Vegas casinos will convert bitcoin to chips for the real risk-takers.
By using your bitcoin to buy things, you can avoid all of the withdrawal fees that come with converting bitcoin to cash.