How do I sell Bitcoin?
February 12, 2021 9:53 AM   Subscribe

I messed around with running a Bitcoin miner WAY back in the day, and it looks like the price recently spiked, making my bitpennies worth something. I want to sell, but I haven't kept up with the cryptocurrency fad at all. I have the impression that there's a lot of shady stuff going on in that space, and I need some help getting oriented.

More specifically:
  • What's the best, most legally compliant website for selling Bitcoin for real money in the US?
  • I have an old wallet.dat file. How can I access it and transfer the bitcoin without downloading hundreds of gigabytes of blockchains and exceeding my data cap? I got this long enough ago that it should be valid for both regular Bitcoin and Bitcoin Cash, so that's probably 500GB right there. Are there any other forks I should deal with? I had used the "official" bitcoin client back in the day, and I have no idea which of the newer clients are good or trustworthy. Specific client recommendations would be appreciated.
  • How would the sale be taxed? I assume a legit place to sell it will send me a 1099 for the capital gains, is that correct?
posted by cosmic.osmo to Work & Money (11 answers total) 1 user marked this as a favorite
I think Coinbase might be the most credible marketplace for Bitcoin and other "legit" cryptos. I am not sure how the mechanics of transferring the currency to them works though.
posted by zeikka at 10:26 AM on February 12 [2 favorites]

Response by poster: Also, it looks like I might have enough Dogecoin to be worth selling, if I can manage to unload it before the memes lose steam.
posted by cosmic.osmo at 11:31 AM on February 12 [1 favorite]

How would the sale be taxed? I assume a legit place to sell it will send me a 1099 for the capital gains, is that correct?
No, apparently they are all different. A friend was just telling me they bought and sold last year with one app and now they have to do all of their own figuring. They switched this year to an app that does give the year end numbers all in one. I don't know which app/companies they were using, so be sure to check this out before deciding.
posted by soelo at 12:37 PM on February 12

Best answer: You can run the official "core" client with the -noconnect switch in order to just open it up and not download new (or any) blocks, and then go into the debug console and run "dumpwallet {filename in quotes}" to export the wallet's keyring as a text file (with the caveat that anyone else who obtains this file can empty your account). Those private keys can be imported back into "light" wallets like Electrum and used against cloud-based copies of the chain without having to run a full node yourself - however you may need to edit the files to remove excess info and comment data (such as the public address each key is associated with).

The same key file from Bitcoin should also work with any coin that forked their chain from it, such as Bitcoin Cash - I'm not sure if there is an Electrum clone for that but there may be other light wallets that support it (Jaxx maybe? I haven't used it). Although, with BCH trading at around 1% of BTC's price, you'll also need to consider whether you have enough of it to be worth fooling with.

The same basic process is going to be the same for any other old wallet.dat files - however Dogecoin is likely to be a problem because early wallets are going to have plain keys for every address (versus one HD seed that all the addresses are spun from), and the only light wallet for Dogecoin (Multidoge, a clone of a Java-based app called Multibit) apparently does *not* support non-HD keys. Other coins may have the same issue.
posted by CyberSlug Labs at 12:44 PM on February 12 [1 favorite]

Def Coinbase. Nowhere else.

They will not issue you a 1099b, no. However you absolutely should report the gains per IRS - the IRS has just issued advice to report it within the last few years, and it's high-visibility now.
posted by Dashy at 12:45 PM on February 12 [1 favorite]

FWIW I believe technically you should have reported the initial value of the Bitcoin as taxable regular income back in the year you mined it and you should report the gain in value as a capital gain in the year you sell it. So if the coins had significant value at the time you mined then you may need to file an amended return for the earlier year. If they were basically worth nothing back then you can probably just report your cost basis as 0.
posted by mskyle at 5:54 AM on February 13

As an FYI, I just finished filing my taxes and Coinbase honestly should be ready for a class action lawsuit because their CSV file export is not Tax Form 8949 compliant, so I paid a friend to fix it for me and calculate the capital gains and losses so I could upload it into Turbotax. That cost me about six hours of my time and energy. If you run into that problem and need help, feel free to DM me so I can refer you to my friend.
posted by yueliang at 11:48 PM on February 13

Response by poster: So here's what I ended up doing:

For the Bitcoin, I followed CyberSlug Labs advice. Exported the private keys from the old Bitcoin Core wallet, transfered them to the Electrum "light wallet," then transferred the bitpennies to Coinbase to sell.

For the Dogecoin, I ended up just using the Dogecoin Core and syncing with the full blockchain, since it's only ~45GB at the time of this writing. I used these instructions from reddit to "bootstrap" the blockchain from a torrent, because the Dogecoin network seems to be pretty slow. Coinbase doesn't appear to deal in Dogecoin, so I created an account on Kraken and sold it. I picked them mainly because they dealt in Dogecoin, appeared to US-based, and appear to be legit enough to have some kind of data feed to Bloomberg Terminals.

I still haven't gotten the money out of either of these exchanges yet.
posted by cosmic.osmo at 4:33 PM on February 14 [3 favorites]

Response by poster: Also the Bitcoin was mined in 2011 and 2013, and the Dogecoin mined in 2014. The Dogecoin value would have certainly been de minimis at the time (since it's always been a joke), and I think the Bitcoin value would have been as well (we're talking about fractions of a Bitcoin), but I've only looked at rough price histories.
posted by cosmic.osmo at 4:41 PM on February 14

Response by poster: Update on getting the real money out:

Coinbase appears to only do banking integration through Plaid, which unforgivably asked me to enter my bank username and password. Nope. I ended up linking a Paypal account, which surprisingly also encourages me to give my bank username and password, but at least it also supports regular ACH transfers with just an account and routing number (plus a verification step using small value deposits). It takes me two steps to get the money to my bank, but I've encountered no fees so far.

Kraken does wire transfers for a fee, which for me was $4.
posted by cosmic.osmo at 8:01 PM on February 23 [1 favorite]

Response by poster: Oh, and I was also able to sell the Bitcoin Cash through Coinbase using pretty much the same steps as I used for the regular Bitcoin, except I had to use the Electron Cash light wallet, which seems to be a clone of Electrum.

Bitcoin Cash also apparently itself forked to make "Bitcoin SV," but that doesn't look like it's on either the of exchanges I created accounts on, and the value of mine is too little to bother with.
posted by cosmic.osmo at 8:17 PM on February 23

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