Cashing Out Thousands of Bitcoin

[joer1212]

How would you go about cashing out very large sums of Bitcoin, or other cryptocurrency?

A hypothetical example:

You were fortunate to purchase five thousand Bitcoin, when it was only pennies a coin, and it's now worth a whopping $130,000,000. This is now sitting in cold storage in your digital wallet, and you want to cash out 100 million usd.

1) Are Coinbase and Gemini your only convenient options? Will they be able to cash out such a large sum, and send the proceeds to your financial institutions without issues?   

2) FDIC insurance only covers up to 250k per bank account. So, you would need more than four hundred accounts in order to cover all 100 million dollars. Is there a better way? Can you just send all 100 million directly to your brokerage accounts? How do the ultra-wealthy do it??

3) What would happen if you suddenly sent a hundred million dollars to several banks/financial institutions? Would the IRS be immediately notified? Would your accounts get frozen? How do you avoid this?


No snarky answers, please. The above is only a hypothetical example. I don't own 5000 Bitcoin. Not even remotely close.

[ixtap]

Your hypothetical is probably counterfactual: why would someone go from Bitcoin to requiring FDIC insurance? That is a pretty severe about face on the risk scale.

[Morning Glory]

No idea. I had about $80 worth from Coinbase earn that I cashed out to buy pizza when I retired. It was easy. I think I had them send it to PayPal so I wouldn't have to give them my bank information but I don't remember for sure. I would not run 100 million through PayPal lol.

[AccidentialMustache]

Isn't the right answer to just do what Buffet does and buy treasuries? At least if you're in the USA. Ship it to a brokerage and start DCA'ing into the market and/or treasuries. If treasuries aren't safe, I would kinda assume the FDIC isn't gonna bail you out either.

But expect to pay taxes on it. In fact, probably get a tax professional so you can do quarterly taxes so you don't end up eating a penalty for underpaying. Note that safe harbor changes when your income rises over a certain amount (I want to say $1m, but I am not a tax lawyer).

[Juan Ponce de León]

What Bitcoin?  You lost it in a freak yachting accident remember.

[Financial.Velociraptor]

I'd think an order to sell 130MM of bitcoin would crater the market and hurt your sale price.  You'd probably sell a few million day for months and deal with the FDIC limit over time...

[wageslave23]

I'd think an order to sell 130MM of bitcoin would crater the market and hurt your sale price.  You'd probably sell a few million day for months and deal with the FDIC limit over time...

It looks like the daily volume was 11 billion today. I think he'd be ok.

[Telecaster]

I don't know the best way to cash it out.  Or even if it is possible.    But once you do cash it out, you don't need to have it all sitting in savings accounts.    You can buy bonds directly from the US government.  That's safe, unless the government itself collapses.   You can own stocks via direct registration with the company (as opposed to owning stocks in your broker's name).   That's not hard to do.   

[joer1212]

Your hypothetical is probably counterfactual: why would someone go from Bitcoin to requiring FDIC insurance? That is a pretty severe about face on the risk scale.

To manage risk.

[joer1212]

Isn't the right answer to just do what Buffet does and buy treasuries? At least if you're in the USA. Ship it to a brokerage and start DCA'ing into the market and/or treasuries. If treasuries aren't safe, I would kinda assume the FDIC isn't gonna bail you out either.

But expect to pay taxes on it. In fact, probably get a tax professional so you can do quarterly taxes so you don't end up eating a penalty for underpaying. Note that safe harbor changes when your income rises over a certain amount (I want to say $1m, but I am not a tax lawyer).

Can you transfer funds from Coinbase directly into a brokerage account, and bypass the banks? I haven't seen an option on that site to do that.
Would the brokerages have a problem with such large funds?
I wouldn't even be looking to evade taxes; I could pay them at the end of the year. I would just want my transaction to go through smoothly.

[joer1212]

I'd think an order to sell 130MM of bitcoin would crater the market and hurt your sale price.  You'd probably sell a few million day for months and deal with the FDIC limit over time...

Good point, but Bitcoin would probably have enough liquidity. I'd be more concerned if I were cashing out other cryptocurrencies outside of the top 5, though.

[joer1212]

I don't know the best way to cash it out.  Or even if it is possible.    But once you do cash it out, you don't need to have it all sitting in savings accounts.    You can buy bonds directly from the US government.  That's safe, unless the government itself collapses.   You can own stocks via direct registration with the company (as opposed to owning stocks in your broker's name).   That's not hard to do.

If I had that much loot, I'd invest it exactly as I do now: 80% stocks, 10% bonds, 5% real estate, 5% cryptocurrencies.

As for owning stocks via direct registration, I've never hear of that. What are the pros and cons?

[Telecaster]

If I had that much loot, I'd invest it exactly as I do now: 80% stocks, 10% bonds, 5% real estate, 5% cryptocurrencies.

As for owning stocks via direct registration, I've never hear of that. What are the pros and cons?

The pro is that it is in your name instead of your broker's name.  If the stocks were in your broker's name and something bad were to happen to your broker, it might be time-consuming to get your money back.  And perhaps you might not be able to get it all back.   Think Bernie Madoff. 

The con is that it will be time consuming to sell, because either the company has to sell the stock for you, or they have to transfer shares to your broker, so she can sell them. 

I only mentioned direct registration because while brokerage accounts are insured, they aren't (as far as I know) insured up to the limits you were asking about.   So by eliminating the broker, you are eliminating the need for that type of insurance. 

But who knows?  If you call up Fidelity and ask them about insurance for a $130,000,000 deposit they will probably sit down and talk with you. 

[yachi]

I think the FDIC limits need to increase.  The failure of Silicon Valley Bank showed us that the 250K limit is way too low to cover a bank account used for writing payroll checks.  Companies that knew they were keeping more than $250K in accounts there got spooked and basically did a digital run on the money to get below the FDIC number.  But it's also not hard for an individual real estate flipper or contractor to go over the $250K in their main account.

I wouldn't fret over having $130 Million in a single bank account for as long as it takes to process the transfers until it gets to a brokerage account.  With the bank, you wouldn't just have to be unlucky enough to have a bank that was failing for some reason, but you'd have to be unlucky enough for it to happen during the exact 2-3 week span when you're moving all your money.  And even if both of those things coincided, as a depositor you get paid before anyone else, so you're basically guaranteed to get your money even if shareholders and debt holders lose all of theirs.

I'd actually be more worried about the Bitcoin crashing and/or regulation crushing the bitcoin middlemen.  So that would be self limiting: I would have already cashed out at a much more manageable $130,000 or $1,300,000.

How do the ultra wealthy do it?  I'm sure when they have a large need to pay for something they move money into a check-writing, or wire-transfer capable account where it's temporarily over the FDIC limit.  They may be making payments in a way that limits how much cash needs to be on hand so that money can stay invested.  And I know they use high-limit credit cards too.  I heard about Charles Barkley spending some insane amount of money on an American Express card at Walmart when he needed to furnish a place in a new city.

[MustacheAndaHalf]

@wageslave23 - The key question is where that $11 billion of BTC trading volume occurs.  I see $0.8 billion each on two Binance markets, BTC/FDUSD and BTC/USDT.  Someone only willing to trade on BTC/USD markets would find the liquidity much more limited.

@Financial.Velociraptor - You're assuming a very foolish approach of placing a "market order" for the full amount.  Someone in this situation should use a "limit order" to soak up buyers.  There are also "iceberg orders" designed for large trades, where the market wouldn't see the full quantity.

[Scandium]

Isn't the right answer to just do what Buffet does and buy treasuries? At least if you're in the USA. Ship it to a brokerage and start DCA'ing into the market and/or treasuries. If treasuries aren't safe, I would kinda assume the FDIC isn't gonna bail you out either.

But expect to pay taxes on it. In fact, probably get a tax professional so you can do quarterly taxes so you don't end up eating a penalty for underpaying. Note that safe harbor changes when your income rises over a certain amount (I want to say $1m, but I am not a tax lawyer).

Can you transfer funds from Coinbase directly into a brokerage account, and bypass the banks? I haven't seen an option on that site to do that.
Would the brokerages have a problem with such large funds?
I wouldn't even be looking to evade taxes; I could pay them at the end of the year. I would just want my transaction to go through smoothly.

Why do you want to bypass the bank, for what purpose?
I'd send it to my Schwab bank account, which is also my broker so I don't see a huge issue with it. (other then them flipping out over such a massive transfer,lol. I don't know what they would do. Luckily I will also never need to know..). Maybe not all at once, idk. Then transfer from there to the broker account. Like other's have said probably invest in treasuries, and never have to worry about money again. Since I have accounts at schwab , vanguard, and fidelity, it also probably couldn't hurt to send ~$50M to each, just to spread it out some.

[MustacheAndaHalf]

Since Coinbase has $248M daily volume on BTC/USD, compared to $11M on Gemini, you'd probably want to sell on Coinbase.  But placing the full order on Coinbase, even as a limit order, is also suboptimal.  You'd want to ratchet down your trading fees, and then trade the largest amounts at the lowest fees.  To avoid explaining maker & taker fees, I'll just take the average of the two.

Coinbase regularly (daily?) calculates your trading fees based on 30 day trading volume.  So the best route is to sell the minimum needed to reach the next tier, wait, and then repeat.

With no trading, you're paying 0.50%
Sell $10k worth (0.4 BTC), and you now pay 0.33%
Sell $50k worth (2 BTC total), and you reach 0.20%
...
After selling $15M worth (564 BTC), your fees drop to 0.11%
You can sell $75M worth and wait for 0.075% fees, and then sell the rest

These last orders may need to be limit or iceberg orders spread over several days, since the amount being sold is relatively large compared to Coinbase's daily BTC/USD trading volume.  Stock brokers have a trading desk to help with situations like this, but I don't know if Coinbase has something like that.

The numbers I used, and explanations of maker vs taker:
https://help.coinbase.com/en/exchange/trading-and-funding/exchange-fees

[ Disclaimer : I'm currently shorting $COIN stock, but I have nothing against Coinbase.  It's a play on crypto crashing when stock markets crash, and its my smallest position ]

[joer1212]

Why do you want to bypass the bank, for what purpose?

So I could get my money into my Vanguard brokerage account with fewer steps.

[joer1212]

With no trading, you're paying 0.50%
Sell $10k worth (0.4 BTC), and you now pay 0.33%
Sell $50k worth (2 BTC total), and you reach 0.20%
...
After selling $15M worth (564 BTC), your fees drop to 0.11%
You can sell $75M worth and wait for 0.075% fees, and then sell the rest

These last orders may need to be limit or iceberg orders spread over several days, since the amount being sold is relatively large compared to Coinbase's daily BTC/USD trading volume.  Stock brokers have a trading desk to help with situations like this, but I don't know if Coinbase has something like that.

Good tips, though I doubt I'l be able to take advantage of the lowest fees, lol.

[joer1212]

The pro is that it is in your name instead of your broker's name.  If the stocks were in your broker's name and something bad were to happen to your broker, it might be time-consuming to get your money back.  And perhaps you might not be able to get it all back.   Think Bernie Madoff. 

The con is that it will be time consuming to sell, because either the company has to sell the stock for you, or they have to transfer shares to your broker, so she can sell them.

I would invest the proceeds of my Bitcoin/cryptocurrency sales in broad-market index funds in my Vanguard and Schwab brokerage accounts. I don't have an individual human broker. Does the above still apply?

[Juan Ponce de León]

Since Coinbase has $248M daily volume on BTC/USD, compared to $11M on Gemini, you'd probably want to sell on Coinbase.  But placing the full order on Coinbase, even as a limit order, is also suboptimal.  You'd want to ratchet down your trading fees, and then trade the largest amounts at the lowest fees.  To avoid explaining maker & taker fees, I'll just take the average of the two.

Coinbase regularly (daily?) calculates your trading fees based on 30 day trading volume.  So the best route is to sell the minimum needed to reach the next tier, wait, and then repeat.

With no trading, you're paying 0.50%
Sell $10k worth (0.4 BTC), and you now pay 0.33%
Sell $50k worth (2 BTC total), and you reach 0.20%
...
After selling $15M worth (564 BTC), your fees drop to 0.11%
You can sell $75M worth and wait for 0.075% fees, and then sell the rest

These last orders may need to be limit or iceberg orders spread over several days, since the amount being sold is relatively large compared to Coinbase's daily BTC/USD trading volume.  Stock brokers have a trading desk to help with situations like this, but I don't know if Coinbase has something like that.

The numbers I used, and explanations of maker vs taker:
https://help.coinbase.com/en/exchange/trading-and-funding/exchange-fees

[ Disclaimer : I'm currently shorting $COIN stock, but I have nothing against Coinbase.  It's a play on crypto crashing when stock markets crash, and its my smallest position ]

I'm quite sure coinbase also routinely connect large sellers and buyers for OTC trades which don't show up on exchange volume or effect the BTC price.

[ChpBstrd]

I'd think an order to sell 130MM of bitcoin would crater the market and hurt your sale price.  You'd probably sell a few million day for months and deal with the FDIC limit over time...

It looks like the daily volume was 11 billion today. I think he'd be ok.

What's your estimate for the percentage of these trades that are washes, i.e. self-dealing to launder money or attempt to spike the price? 85%?

[GuitarStv]

Your hypothetical is probably counterfactual: why would someone go from Bitcoin to requiring FDIC insurance? That is a pretty severe about face on the risk scale.

To manage risk.

Put the money into a single account that you can draw from to invest.  Provided you invest the money within a week or two, the risk should be pretty minimal that your financial institution will go bust wouldn't it?

[Scandium]

Why do you want to bypass the bank, for what purpose?

So I could get my money into my Vanguard brokerage account with fewer steps.

Ok, sure, I guess.
But in my opinion, if in this scenario you stand to make $130 million and never have to work another day in your life. Then taking a few minutes, and an extra 1-2 days waiting on a transfer, wouldn't really be a huge concern..

[reeshau]

The $250k FDIC limit can be managed.  SOFI offers $2M in FDIC coverage through a syndicate.  Bigger banks do the same, but they don't advertise it.

It's the same as you would do: opening accounts at multiple banks.  Only, SOFI is the only one you deal with directly.

I do not know if this type of arrangement was tested during the 2008 financial crisis.  SOFI is young, so obviously theirs has not.

[AccidentialMustache]

Can you transfer funds from Coinbase directly into a brokerage account, and bypass the banks? I haven't seen an option on that site to do that.
Would the brokerages have a problem with such large funds?
I wouldn't even be looking to evade taxes; I could pay them at the end of the year. I would just want my transaction to go through smoothly.

So what if you have to go through a regular banking account? It isn't like you're trying to leave money there for a decade. In and out. Sure you might have a brief hang-up while they do some level of know your customer with that sort of transaction, but they aren't going to hold it up. You aren't thinking like a (truly) rich person.

Which is super evident when you're looking at taxes at the end of the year. Hello penalty. Get a tax person. Figure out how you need to pre-pay the feds and do it to avoid giving them 10% or more of your total.

[joer1212]

Why do you want to bypass the bank, for what purpose?

So I could get my money into my Vanguard brokerage account with fewer steps.

Ok, sure, I guess.
But in my opinion, if in this scenario you stand to make $130 million and never have to work another day in your life. Then taking a few minutes, and an extra 1-2 days waiting on a transfer, wouldn't really be a huge concern..

It's not just about time and labor. I also want to minimize friction and potential issues by involving as few parties as possible. Fewer=better.

[Chris Pascale]

I guess, first, buy stuff you need or want.

Regarding the $250,000 in FDIC insurance, would you really want more than that in a bank?

[MustacheAndaHalf]

Regarding the $250,000 in FDIC insurance, would you really want more than that in a bank?

... FDIC insurance only covers up to 250k per bank account. So, you would need more than four hundred accounts in order to cover all 100 million dollars. Is there a better way?

When your only tool is a hammer, all your problems look like nails.  FDIC insurance is backed by the U.S. government, who also backs U.S. Treasury Bonds.  If you use a Treasury Direct account, you pay $0/trade but are limited to $10,000,000 per week.

"You may purchase $10 million of each Treasury marketable security type in a single auction."
https://www.treasurydirect.gov/indiv/help/treasurydirect-help/faq/

[joer1212]

Regarding the $250,000 in FDIC insurance, would you really want more than that in a bank?

... FDIC insurance only covers up to 250k per bank account. So, you would need more than four hundred accounts in order to cover all 100 million dollars. Is there a better way?

When your only tool is a hammer, all your problems look like nails.  FDIC insurance is backed by the U.S. government, who also backs U.S. Treasury Bonds.  If you use a Treasury Direct account, you pay $0/trade but are limited to $10,000,000 per week.

"You may purchase $10 million of each Treasury marketable security type in a single auction."
https://www.treasurydirect.gov/indiv/help/treasurydirect-help/faq/

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