Bitcoin has grown from a niche digital currency to a mainstream financial asset, with many Canadians investing in Bitcoin as part of their investment portfolio. While buying and holding Bitcoin in a crypto wallet is relatively straightforward, cashing it out can be more complex. Whether you're looking to cash out a small amount for daily expenses or a larger sum for a significant purchase, it's essential to do so safely and securely.
This guide walks you through the safest methods for cashing out Bitcoin in Canada, ensuring you get the best value while protecting your assets. From understanding the different platforms available to navigating the legal and tax implications, we'll cover everything you need to know to turn your Bitcoin into Canadian dollars confidently.
What is Bitcoin?
Bitcoin is a type of digital currency, often referred to as a cryptocurrency. It was invented in 2008 by an unknown person or group of people using the name Satoshi Nakamoto. Unlike traditional currencies, such as the Canadian dollar or the US dollar, Bitcoin operates without a central authority or bank. Instead, it uses a decentralized technology called blockchain to manage transactions and create new units. While cryptocurrencies aren't legal tender, they are legal in Canada.
Legal implications of Bitcoin
Bitcoin, and cryptocurrencies in general, have unique legal implications in Canada. Understanding these implications is crucial for anyone looking to buy, sell, or use Bitcoin.
Legal status: In Canada, Bitcoin is legal. It is considered a digital asset and can be used for transactions and investments. However, it is not considered legal tender, meaning it is not recognized by the government as an official currency.
Regulations: Cryptocurrency is regulated in Canada by The Financial Transactions and Reports Analysis Centre of Canada (FINTRAC). They must register with FINTRAC, implement anti-money laundering (AML) and know-your-customer (KYC) policies, and report suspicious transactions.
Taxation: Cryptocurrency is taxable in Canada because the Canada Revenue Agency (CRA) treats Bitcoin as a commodity. The profit when you sell Bitcoin is considered a capital gain and is subject to capital gains tax. If you receive Bitcoin as payment for goods or services, it is considered business income and is taxable. You are required to keep detailed records of your Bitcoin transactions, including dates, amounts, and parties involved.
Consumer protection: Unlike traditional financial institutions, Bitcoin transactions are irreversible, and there is no central authority to appeal to in case of fraud or errors. Consumers must be vigilant and use reputable exchanges and wallets for storing cryptocurrency.
Securities regulation: If Bitcoin or any other cryptocurrency is used as part of an investment contract, it might be considered a security and subject to securities regulation. Businesses and investors need to ensure compliance with the law.
Banking relationships: Some Canadian banks may have policies regarding transactions with cryptocurrency exchanges. It’s essential to check with your bank about their policies on cryptocurrency transactions to avoid potential issues.
International transactions: Using Bitcoin for international transactions must comply with Canada’s regulations on cross-border transactions. It includes reporting requirements for transactions over a certain threshold.
Understanding your options to cash out Bitcoin in Canada
When it comes to cashing out Bitcoin in Canada, you have several options, each with its advantages and considerations.
Cryptocurrency exchanges
Cryptocurrency exchanges like Coinbase, Kraken, and Bitbuy allow you to sell your Bitcoin for Canadian dollars (CAD). These platforms are known for their high liquidity, meaning you can usually find a buyer quickly. They also offer competitive exchange rates and robust security features to protect your transactions. However, fees can vary, and you will typically need to complete identity verification (KYC) processes before you can trade.
Peer-to-peer platforms
Peer-to-peer platforms like LocalBitcoins and Paxful connect buyers and sellers directly, allowing you to set your price and choose your preferred payment method. This flexibility can be a significant advantage, and the fees on these platforms are often lower than those on traditional exchanges.
However, selling Bitcoin through P2P platforms requires trust in the buyer and carries a higher risk of fraud. These transactions are generally less secure than those conducted through regulated exchanges.
Bitcoin ATMs
Bitcoin ATMs offer a convenient way to sell Bitcoin and withdraw cash immediately. These machines are located in major cities across Canada and are ideal for small transactions. You follow the machine’s instructions to sell your Bitcoin and receive cash. However, Bitcoin ATMs typically charge higher fees than other methods and have limited transaction amounts. Availability can also be an issue, depending on your location.
Over-the-counter (OTC) services
Over-the-counter services cater to individuals or institutions looking to trade large amounts of Bitcoin. These services provide personalized assistance to help you execute your trades, offering high privacy and discretion. OTC services are useful for high-volume transactions, as they can handle significant amounts of Bitcoin without affecting the market price. However, these services generally come with higher fees and are not necessary for small transactions.
Direct sales to family or friends
If you have friends or family members interested in buying Bitcoin, you can sell it to them directly. This method is straightforward, with no transaction fees involved. You can receive payment in cash, via bank transfer, or through another agreed-upon method. However, this option is usually only suitable for small amounts and is limited to people you trust.
Steps to cash out Bitcoin
Choose a platform: Select the most suitable option based on your needs, such as liquidity, transaction size, fees, and convenience.
Create an account: Sign up on the chosen platform if required. It often involves providing identification and completing a KYC process.
Transfer Bitcoin: Send your Bitcoin from your crypto wallet to the platform’s wallet. Ensure you copy the correct address to avoid loss of funds.
Place an order: Place a sell order on exchanges and P2P platforms. For a Bitcoin ATM, follow the machine’s instructions to sell Bitcoin and withdraw cash.
Withdraw funds: Once the sale is complete, withdraw your CAD to your bank account or as cash, depending on the method used.
Using brokers and intermediaries
Brokers act as middlemen who facilitate the buying and selling on your behalf, often providing a personalized service that can simplify the process.
Swap your Bitcoin cash using a broker
Brokers and intermediaries typically offer over-the-counter (OTC) services, which are ideal for larger transactions or those looking for a more discreet way to cash out their Bitcoin. When you use a broker, you are essentially selling your Bitcoin to the broker, who then sells it on your behalf. This process can be more streamlined and less stressful compared to using an exchange or P2P platform.
Pros for using brokers and intermediaries to sell crypto
Brokers handle all aspects of the transaction, making the process more convenient for you. They often provide tailored services, helping you navigate the complexities of selling Bitcoin. OTC services through brokers are particularly useful for large transactions as they can handle large crypto transactions without significantly impacting the market price. Using a broker can also offer a higher level of privacy than public crypto exchanges, as transactions are conducted directly between you and the broker.
Cons of using brokers and intermediaries to sell Bitcoin
Brokers typically charge higher fees for their services than a traditional cryptocurrency exchange. It's crucial to use a reputable broker to avoid potential scams or fraud. You may have to do extensive research and verify the broker's credibility beforehand. It's also important to ensure the broker complies with Canadian regulations, including KYC and AML policies, to avoid legal issues.
Steps to convert Bitcoin using a broker
Find a reputable broker Research and choose a well-known, trustworthy broker with a good track record in the cryptocurrency community. Look for reviews and testimonials to ensure the broker’s reliability.
Create an account Contact the broker to set up an account. It usually involves providing identification and completing KYC processes to comply with regulatory requirements.
Negotiate terms Discuss the terms of the transaction with the broker, including the amount of Bitcoin you wish to sell, the exchange rate, and any fees involved. Ensure you understand all the terms before proceeding.
Transfer Bitcoin Transfer the agreed amount of Bitcoin to the broker’s wallet. Make sure to double-check the wallet address to avoid any mistakes.
Receive payment Once the broker receives the Bitcoin, they will transfer the agreed amount of Canadian dollars to your bank account or another preferred payment method. The payment process can vary depending on the broker, so clarify the details in advance.
Using your bank account
Linking your bank account is a common and convenient method for cashing out Bitcoin in Canada. This approach involves transferring the proceeds from your Bitcoin sale directly to your bank account, providing a straightforward way to convert your digital assets into fiat currency.
How it works
When you sell Bitcoin on a cryptocurrency exchange or through a broker, you can choose to have the funds deposited directly into your bank account. It requires linking your bank account to the exchange or broker’s platform, allowing seamless transfers.
Pros of linking your bank account
Linking your account provides convenience because you can transfer funds directly and easily use the money. Banks offer a high level of security, ensuring your funds are safe. As most people are familiar with bank transfers, it's a straightforward process.
Cons of linking your account
Linking your Canadian bank account requires identity verification, which can take time and may not be ideal if you want to use Bitcoin instantly. Some banks charge fees for receiving large amounts of money or for currency conversion. Since bank transfers are traceable, linking your account may not be ideal for those who want privacy.
Steps for linking your bank account for selling Bitcoin
Choose a platform: Select a cryptocurrency exchange or broker that supports bank transfers in Canada. Popular exchanges include Coinbase, Kraken, and Bitbuy.
Create an account: Sign up for an account on the chosen platform. Provide personal information and complete the identity verification process to comply with regulations.
Link your bank account: Navigate to the platform’s settings or account management section to link your bank account. Provide your bank account details, including the bank name, account number, and transit number.
Verify your bank account: The platform may require you to verify your bank account. It often involves the platform making a small deposit into your bank account, which you confirm by entering the deposit amount on the platform.
Sell Bitcoin: Once your bank account is linked and verified, you can proceed to sell your Bitcoin. Enter the amount of Bitcoin you wish to sell and select your bank account as the withdrawal method.
Withdraw funds: After the sale is complete, the proceeds will be transferred to your linked bank account. This process can take a few business days, depending on the platform and your bank.
Safety and security considerations for selling Crypto in Canada
Selling cryptocurrency in Canada involves several safety and security considerations to ensure your transactions are secure and your funds are protected, as cryptocurrency can be stolen and have certain risks.
Use reputable platforms
When selling your cryptocurrency, always use reputable and well-established platforms. Popular exchanges like Coinbase, Kraken, and Bitbuy are known for their security measures and reliability. Check user reviews and ratings to ensure the platform’s credibility.
Enable Two-Factor Authentication (2FA)
Two-factor authentication (2FA) adds an extra layer of security to your accounts. Even if someone obtains your password, they will still need a second form of verification, such as a code sent to your mobile device, to access your account.
Verify platform security
Ensure that the platform you choose employs strong security measures, such as encryption, secure socket layer (SSL) certificates, and cold storage for funds. These measures protect your data and funds from cyber threats.
Protect your private keys
Never share your private keys with anyone. Your private keys are the only way to access your cryptocurrency, and sharing them can lead to loss of funds. Store your private keys securely, preferably offline in a hardware wallet.
Beware of scams
Phishing scams involve fraudulent attempts to obtain sensitive information by pretending to be trustworthy. Always verify the authenticity of emails, links, and websites before entering your information. Be cautious of unsolicited communications asking for your account details.
Use secure networks
Avoid using public Wi-Fi networks when accessing your cryptocurrency accounts. Public networks are more susceptible to hacking. Instead, use a secure and private internet connection to conduct your transactions.
Understand fees
Be aware of the fees associated with selling your cryptocurrency. Different platforms have varying fee structures, including trading, withdrawal, and network fees. Understanding these fees will help you avoid unexpected costs and ensure you get the best transaction value.
Verify transactions
Double-check all transaction details before confirming a sale. Ensure that the recipient's address is correct, the amount is accurate, and you are using the right network for your cryptocurrency. Mistakes can lead to irreversible loss of funds.
Monitor market conditions
Cryptocurrency prices can be highly volatile. Monitor market conditions to sell your crypto at the best possible price. Avoid panic selling during market downturns and aim for a strategic approach to maximize your returns.
Comply with legal and tax regulations
Cryptocurrencies like Bitcoin and NFTs are taxable in Canada. Ensure you comply with Canadian regulations regarding cryptocurrency transactions like reporting your cryptocurrency sales to the CRA. Keep detailed records of your transactions, including dates, amounts, and counterparties, to meet legal requirements.
Consider escrow services for peer-to-peer sales
If you are selling your cryptocurrency through a peer-to-peer marketplace, consider using an escrow service. Escrow services hold the buyer’s funds until the transaction is complete, protecting both parties from fraud.
Store your money safely with KOHO
KOHHO offers convenience, security, and rewards to enhance your financial experience and ensure your money stays safe. Our intuitive platform lets you deposit money into your account, manage your balance, and track your spending.
Whether you’re looking for overdraft protection coverage, a virtual credit card, or a high-interest savings account to earn interest when you cash out your Bitcoin, we have the tools and expert advice to help.
Note: KOHO product information and/or features may have been updated since this blog post was published. Please refer to our KOHO Plans page for our most up to date account information!
Grace Guo
Grace is a communications expert with a passion for storytelling. This hobby eventually turned into a career in various roles for banks, marketing agencies, and start-ups. With expertise in the finance industry, Grace has written extensively for many financial services and fintech companies.
