Business owners looking to accept cryptocurrency payments may feel overwhelmed when they realize how complex the world of crypto has become. Shifting regulations, thousands of different cryptocurrencies, and countless technical terms surround the market.
One of the most important aspects of accepting crypto is knowing how to convert crypto to fiat (USD) as a business.
Below, we discuss what it means to convert crypto to fiat, the pros and cons involved, and the fees and tax implications.
What Is a Crypto Conversion?
A conversion involves exchanging one cryptocurrency for another or for fiat (US dollar). Depending on the method and exchange platform used, there may be direct exchange rates between different cryptocurrencies or everything might be measured based on its current relationship to fiat.
How Do I Convert Crypto to Fiat for My Business?
In most cases, businesses will convert crypto through a platform that acts as a payment gateway or payment processor and includes other features helpful to your business.
Payment gateways provide a hosted wallet where conversions are stored, much like a bank. They help facilitate crypto payments from your customers and offer conversion options. Conversions may go directly to fiat or a stablecoin, a cryptocurrency pegged 1:1 to the value of the US dollar.
Some cryptocurrency exchanges work like stock market accounts. There are several types of crypto exchanges, each with unique features, pros, and cons. For the most part, businesses should focus on robust payment gateway type accounts designed for eCommerce.
What Are the Pros and Cons of Converting Crypto to Fiat as a Business?
Unless you can sustain your business for long periods of time without your crypto profits, you’ll need to convert crypto into fiat. For the most part, this is a net positive for your business, but there are pros and cons to be aware of.
Crypto Conversion Pros
- Liquidity: The top cryptocurrencies trade in such high volume that you will most likely find it easy to convert from one to another and lock in the current market value using a trustworthy platform.
- Profit certainty: Most cryptocurrencies are highly volatile, meaning their prices fluctuate constantly, sometimes to extremes. When you accept crypto payments, being able to immediately convert that to the payment’s cash value provides you with stability.
- OTC options: Over-the-counter markets can handle private brokered exchanges between anonymous entities for extremely large trades, letting you negotiate a competitive rate if you’re exchanging millions of dollars worth of crypto.
- Market timing: If you’re savvy and pay close attention to market trends, you can wait to convert crypto until it has risen in value, potentially adding more profit.
- Lower fees: Depending on the type of platform you use for exchanging crypto to fiat, large-volume conversions of top cryptocurrencies often qualify for reduced trading fees.
Crypto Conversion Cons
- Missed upside opportunities: Converting immediately protects your business from price fluctuations, but it also means missing the chance to take advantage of big spikes in profit when the market goes up.
- Slippage risk: Large conversions can cause slippage, which occurs when trying to convert more cryptocurrency than is currently available to trade. If you don’t use an OTC or know how to check the amount of crypto available at the current rate on an exchange, you risk getting less value for your trade.
- Tax implications: Selling crypto triggers a tax obligation. Just like fiat transactions, it is your responsibility to keep up with crypto tax regulations.
What About Converting Large Amounts of Crypto to Fiat?
Businesses working with large account balances often worry about whether they will run into problems trying to convert large amounts of crypto into fiat. In most cases, this concern can be mitigated by working with the most popular cryptocurrencies, which have proven their reliability for many years and are traded continuously. These coins see tens of billions of dollars of daily market volume, so, for example, plenty of Bitcoin is always available to cover immediate conversions for your business.
What Fees Are Involved In Converting Crypto to Fiat as a Business?
Unless fees are waived for a special promotion, expect to pay a fee every time you convert cryptocurrency—whether between two currencies (including stablecoins) or into fiat. These transactions may be called trades, conversions, exchanges, or swaps.
Conversion fees range from 1% to 2% of the transaction and may include a minimal per-transaction fee. Typically, there is also a withdrawal fee for crypto if you want to store it in your private wallet. Crypto platforms also provide onramps and offramps, which allow you to transfer fiat to and from your bank account.
Conversion fees vary from one platform to the next and change over time. It’s important to look up fee schedules on a regular basis to ensure you are paying what you expect.
Read our article about crypto conversion fees for the finer details about the different types of platforms involved in converting crypto to fiat as a business.
Crypto and Taxes
It’s important to talk with a professional about specific tax-related concerns. Crypto regulations and tax rules change, and as the crypto industry evolves, there are sure to be changes that impact taxes.
Currently, the main things to know about crypto and taxes are:
- Crypto payments for goods or services are taxable income—just like fiat.
- If you use crypto to purchase other goods or services, you need to keep up with the cost basis of the crypto you acquired and pay capital gains taxes if it was worth more when you used it.
- Sold crypto is treated as capital gains.
Learn more about crypto and taxes, including details about short- and long-term capital gains rates, NFT tax regulations, and more.
Can You Make Money by Converting Crypto?
Since much of the crypto market involves exchanging one cryptocurrency for another or converting to and from fiat, people are often curious whether it’s possible to offer conversions as a service for profit.
Doing so is highly regulated and requires approval from several regulating bodies. The federal government is involved in regulation, but so are many states. There’s a lot to keep track of. Offering crypto conversion for profits requires obtaining a money transmitter license and working with legal advisors to gain approval from state to state.
However, you are allowed to earn a profit by accepting crypto payments. If you hold on to crypto and wait to sell it at a profit, just be sure you keep a record of those transactions and pay taxes on the profit.
Using Crypto for Business Expenses
In addition to everything you’ve learned above, sometimes the best option is to use your crypto to pay for other business expenses instead of converting it all to fiat. A great example is using your crypto to pay for shipping with Bitcoin Postage.
It’s easy, fast, and secure. You’re paying the same rates as everyone else—just with the added benefit of using your crypto funds!