Key Takeaways:
- When you buy crypto, your money is used to purchase it from a crypto exchange
- The exchange collects fees for facilitating the buying and selling of cryptocurrencies
- If you sell crypto, the money is stored in your exchange account and can be transferred to your bank account or other payment options
Cryptocurrencies, as Bitcoin, are decentralized without intermediaries storing our money. So where does my money go when I buy crypto?
Where Does My Money Go When I Buy Crypto?
Like with stocks, the cash goes to that exchange where you buy crypto.
When you buy crypto, your money is used to purchase it from a crypto exchange.
The most common way to buy cryptocurrencies is through exchanges the same way as you would buy or sell particular stocks. The exchanges business model is to provide people an easy way to buy crypto. They take fees for doing that to earn money.
Your money is also used to pay the exchange in fees. The exchange collects all the money people spend. In the first step, a user opens an account and a crypto wallet address will be created.
This wallet address is used to send and receive cryptocurrencies, as these are the assets you want to buy at a crypto exchange. In the next step, you would transfer some of your real world money into your crypto account.
This money would be stored on your exchange account. From there, you can buy crypto. If you buy it on an exchange, your bought crypto is transferred into your wallet in your exchange account generated at your account creation.
From there, it is stored in your account and you can either leave it there to transfer it quickly for further purchases or you can transfer it away from the exchange into your personal wallet. These are called hot wallets because they are stored online.
For this transfer, you always need your address to receive it. After you bought your crypto, your money doesn’t stay on the exchange as they didn’t sell you the crypto. It is further transferred to a real person or company.
Who Gets the Money When You Buy Bitcoin?
When you buy crypto like Bitcoin, Ethereum or cryptocurrency tokens, your money always goes to another person.
If you buy your crypto on a cryptocurrency exchange, then your funds go to them only in the first step.
They act as an intermediary, helping people to transfer digital assets easily between them. After you buy Bitcoins, your funds go to the exchange. They collect the money of all transactions and then move it further to the people who sold their Bitcoin.
Every time you buy Bitcoin, you always have another person who wants to sell their Bitcoin. The exchange searches for a matching person who wants to sell Bitcoin for the price you want to pay. In case of a match, the transaction is processed.
The exchange collects your money and the Bitcoin from the other person and exchanges Bitcoin for cash taking a fee for this service. Then you get the crypto from the person and the person gets the money from you.
Where is My Money After I Sell Crypto?
If you would sell your BTC, it would work the other way around. You would want to sell it for a specific price and if the exchange finds a person who wants to buy Bitcoin for the price you wish, then the exchange processes the transaction.
Here, your Bitcoin is moved to the exchange and the money of the other party, too. Then it is exchanged so you get the money from the Bitcoin buyer and he gets the crypto from you.
Besides exchanges, you can also directly search for people to buy and sell cryptocurrency. Here, you don’t need an exchange to sell or buy crypto. You can search for people on the internet to transfer crypto and money directly.
This way, you don’t need to pay any fees, but the risk of getting scammed is higher. Besides exchanges and other people, miners also get some money. They mine BTC and therefore provide the blockchain technology the ability to validate transactions.
For this service, they get BTC rewards but also a small transaction fee you always pay for every Bitcoin transaction. Overall, another person who is selling you their crypto is where the dollars go when you buy Bitcoin or another crypto.
How to Cash Out Your Crypto or Bitcoin?
You cash out your crypto by converting it into a fiat currency like USD, EUR or GBP.
The most common way to exchange Bitcoin or crypto is to use an exchange such as Coinbase or Gemini.
If you possess digital money you want to cash out into money, you will need to sell it on an exchange or directly to another person.
There are services you can use to find people through peer-to-peer networks as another way to invest in Bitcoin. You can look for other people and transfer it directly to them without fees.
If you decide to go for a regular exchange, you will need to transfer your crypto in the first step onto the exchange. After the transaction is finished, your cryptos are stored on the wallet within your exchange account.
From there, you need to sell it in order to get money for it. If you sell it successfully, the money will be transferred into your account in the first step. To cash it out, you will need to transfer it to your personal bank account.
If you decide to use the direct way over local people or peer-to-peer exchanges, then you can directly sell your Bitcoin and provide your payment option to get the money directly from the person you sold your Bitcoin to.
Here, you can negotiate the price of Bitcoin and other cryptocurrencies directly with the buyer. Another option to cash out your crypto is to use Bitcoin ATMs. Instead of a person, you can sell your crypto to the provider of the Bitcoin ATM.
If you accept his price, you can transfer your Bitcoin onto the ATM’s wallet address. Then you can cash out your Bitcoin. It’s one of the easiest ways to cash out crypto.
What Happens When You Buy a Cryptocurrency?
When you buy a cryptocurrency, you always trade money for crypto.
This is the same as you would trade your money for stocks, services or goods.
We always trade our money for something calling it paying. With crypto, you would do the same. You would use your money trading crypto. Your money would be transferred the same way as you would buying goods in an online shop, for example.
But instead of consuming the things you buy, you store your money’s value in something else. You want to do that hoping to secure your wealth or, in the best case, to increase it. The primary reason people buy cryptocurrency is to increase wealth.
So basically what happens when you buy cryptocurrency is that you exchange money through crypto as another way to store your wealth. Money is known for inflation, so the value of funds decreases.
What people do to prevent it is to invest money in stocks, real estate or precious metals. With crypto, we now have another possibility to store our wealth. Because the crypto market is relatively new, it is extremely volatile, which brings more risk.
Before you buy any cryptocurrency, be sure to be properly informed and be clear about all risks associated with it. Stock market can be risky, too. You would do the same precautions if you would invest there.
FAQ
Where Does the Money Come From When Crypto Goes Up?
The money comes from the people who believe Bitcoin is increasing in value and invest in it.
It is always a question of demand and supply.
If there is a high demand, it means many people are investing in crypto. This means they all exchange their money into virtual currencies, driving the prices up.
Most of the money comes from institutional investors entering the market and businesses exploring the possibilities of crypto. The other share of it are private persons looking to store their wealth in rising assets.
They all put their money into crypto, which increases the demand for it. Because the limited supply of Bitcoin doesn’t change, the prices can increase strongly. This leads more people into crypto bringing in more money.
Where Does the Money Go From Bitcoin?
When you sell crypto, your money is stored in your crypto exchange account.
It is not immediately transferred to your bank account.
In your exchange account, your provider always stores the money. If you want to get it to your bank account, transfer it manually. After this process, you will have the money finally in your bank account.
If you sell crypto directly on P2P exchanges, local Bitcoin services or ATMs, then you will get your money immediately either in cash or into the payment option you chose.
When You Sell Crypto, Do You Get Real Money?
Yes, you get real money for your crypto.
You sell crypto the same way as any other asset or goods.
Selling it means you exchange it for something else, in this case, money. The other party you are selling to then gives you their money. If you get money or maybe another crypto depends on what you are doing.
Instead of selling crypto for money, you could also exchange it for another cryptocurrency, like changing Bitcoin to Ethereum. So even if crypto is virtual, you can always sell it for real money.
It’s important to note that Bitcoin prices can fluctuate in short periods of time. Keep this in mind before you sell to avoid potential losses.
Conclusion: Where Does My Money Go When I Buy Crypto?
When you buy crypto, your money goes to the exchange where you make the purchase. The exchange acts as an intermediary, matching buyers and sellers and facilitating the transfer of digital assets. The exchange collects fees for its services and transfers the money to the seller.
If you sell crypto, the money is stored in your exchange account and can be transferred to your bank account or other payment options.
