Converting cryptoassets into fiat (“traditional”) currency allows you to lock in any gains and pursue other investment opportunities. With diversification, one of the golden rules of investing, these are the reasons you might want to convert crypto to fiat, and how to do it.
The possibility of cryptoassets becoming more mainstream continues to be one of the key price drivers of the sector. Anyone fortunate enough to have profited from the trend of wider acceptance could now be considering locking in some of their crypto gains and rotating into different asset classes.
Increased interest in crypto has done more than impact prices. There are now new ways to convert crypto into fiat currency and build a more diversified portfolio located on one multi-asset trading platform. These are the factors to consider if you are looking to develop a more nuanced investment approach.
Can You Convert Crypto to Fiat?
Yes, you can convert cryptocurrency to fiat currency. The process involves exchanging digital assets such as Bitcoin for traditional currencies such as GBP, EUR or USD. The conversion can be done using trading platforms, but it is a good idea to understand the procedures and fees.
Some platforms offer seamless conversion options which are integrated into their wider trading services. These one-stop shops allow you to convert crypto to fiat currency and go on to reinvest in different sectors — all on the same trading platform.
The eToro Money crypto wallet, for example, can receive cryptoassets such as Bitcoin and Ethereum from an external source and allows you to sell your crypto and convert it into fiat currency. Those USD / EUR / GBP funds can then be used to invest in other types of assets on the eToro platform.
Tip: When converting crypto to fiat consider both the conversion rate and any administrative fees which might apply.
Why Convert Crypto to Fiat?
There are several common reasons for wanting to convert crypto to fiat currency. Primarily, it allows investors to hold their wealth in a form that is more widely accepted for everyday transactions. It can also be seen as a strategic move which is part of a broader risk management strategy.
By converting crypto to fiat, investors can lock in profits from their digital assets, especially in volatile markets where prices can fluctuate dramatically. This conversion acts as a hedge against market downturns in the crypto sector and ensures that some of the investment value is preserved in a more stable currency.
The first part of the process which involves converting crypto into cash allows investors to seize new opportunities and invest in areas of the financial markets which offer a degree of risk-return, but not on the same scale as the crypto markets. This can include investing in stocks, bonds, ETFs, commodities and forex.
How To Convert Crypto to Fiat
There are various ways to convert your crypto into fiat currencies. It starts by identifying a platform or service that supports crypto-to-fiat exchanges.
- Multi-asset platforms: Brokerage platforms such as eToro offer user-friendly functionality and a secure environment in which to process crypto to fiat transactions. Using a multi-asset broker which facilitates trading and investing in both crypto and conventional asset classes allows you to consolidate your investments in one place.
- Crypto exchanges: Specialist crypto exchanges will allow you to exchange your cryptoassets for fiat currency. If you want to invest in asset classes other than crypto, you can transfer your fiat cash from the exchange, but there may be fees associated with processing that transaction.
- Peer-to-Peer platforms: These platforms connect buyers and sellers directly, allowing you to negotiate the exchange rate and payment method. While this can offer more flexibility, it requires a certain level of trust and negotiation skills.
- Crypto ATMs: Some locations have ATMs that allow you to convert your crypto into cash. These machines provide a convenient way to access fiat currency, but may charge higher fees compared to online platforms.
Tip: All investment strategies need to factor transaction fees into their cost-benefit analysis.
Strategies for Future Investment
Once your crypto has been converted into fiat, these funds can be reinvested in investment strategies which target further growth. Diversifying your investments can help to mitigate risks and increase potential returns. Here are three strategies to consider:
Portfolio diversification
Diversifying your investment portfolio is a key strategy to managing risk and enhancing returns. By building a portfolio with investments spread across various asset classes, you can reduce the impact of any single asset’s poor performance on your overall portfolio.
Income investing
Creating an income strategy involves buying assets which make regular payments such as dividends or interest payments. This strategy can provide a steady cash flow, which can be used to finance your lifestyle or be reinvested for further growth.
Value and growth investing
Value investing involves picking stocks that appear to be undervalued by the market, while growth investing focuses on companies expected to grow at an above-average rate. Both strategies require thorough research and analysis.
Tip: Reinvesting income you receive from your portfolio helps you to benefit from the compounding effect.
By understanding and implementing these strategies, you can effectively leverage your converted fiat funds to build a robust and diversified investment portfolio. This approach not only helps to manage risks, but also positions you for potential long-term gains in the financial markets.
Final thoughts
Making the right trading decision is only part of the investment process. There are practical factors to consider as well, such as ensuring your trading set-up is robust, straightforward, and easy to manage.
Holding your crypto and non-cryptoassets on the same platform is one way to make investing less time-consuming and controllable. It can make it easier to track overall performance and apply changes to strategies. It also allows you to adjust the balance of your exposure to crypto and non-crypto sectors in line with how you judge the sectors will perform.
Learn more about crypto strategies and other forms of investing by exploring eToro Academy.
FAQs
- Are there any tax implications when converting crypto to fiat?
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Yes, converting crypto to fiat may have tax implications. In many countries, cryptocurrency transactions are subject to capital gains tax. It’s important to consult with an independent tax professional to understand your specific obligations based on your jurisdiction and individual circumstances.
- Are there any fees associated with converting crypto to fiat?
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Yes, most platforms and services charge fees for converting crypto to fiat. These fees can vary depending on the platform, the amount being converted, and the specific cryptocurrencies involved. It’s essential to review the fee structure of the platform you choose before making a transaction.
- Is it safe to convert crypto to fiat?
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Converting crypto to fiat is generally safe when using reputable platforms and services. Established cryptocurrency exchanges and regulated services prioritise the security of their users’ funds and personal information. However, it’s crucial to exercise caution when using peer-to-peer platforms or lesser-known services, as there may be a higher risk of fraud or scams.
This information is for educational purposes only and should not be taken as investment advice, personal recommendation, or an offer of, or solicitation to, buy or sell any financial instruments.
This material has been prepared without regard to any particular investment objectives or financial situation and has not been prepared in accordance with the legal and regulatory requirements to promote independent research. Not all of the financial instruments and services referred to are offered by eToro and any references to past performance of a financial instrument, index, or a packaged investment product are not, and should not be taken as, a reliable indicator of future results.
eToro makes no representation and assumes no liability as to the accuracy or completeness of the content of this guide. Make sure you understand the risks involved in trading before committing any capital. Never risk more than you are prepared to lose.