A fiat withdrawal is the process of transferring fiat funds from your crypto exchange account to your bank account. For example, a EUR balance from Binance can be transferred through a bank transfer to your local bank. Your exchange account must contain fiat currency in order to transfer money from it.
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Fiat money is a government-issued currency that is not backed by a physical commodity but rather by the government that issued it. The value of fiat money is derived from the relationship between supply and demand and the stability of the issuing government.
The most popular fiat currencies are EUR, backed by the European Central Bank, USD, backed by the US Federal Reserve, and GBP, which is unique to the UK and its colonies as the only major currency backed by a constitutional monarchy.
It is very likely that you will need to use fiat money to pay for groceries, bills, etc. That is why if you invest in crypto, you may need to perform a fiat withdrawal to take out BTC to EUR, USD, or GBP.
If you currently hold cryptocurrency and want to withdraw it as fiat money, you will need to trade it.
For example, if you hold BTC and want to withdraw GBP, you will need to trade BTC/GBP on the exchange of your choice.
How you get fiat in exchange for cryptocurrency depends on your goals and which crypto you hold.
The current crypto bear market has led many people to fiat withdrawals, resulting in less available cryptocurrency.
If your exchange does not have a big enough deposit, those trying to withdraw fiat might find this to be challenging or impossible. For this reason, people are panicking, selling even more of their crypto and stressing the liquidity pools.
As long as you stick with reputable names in the business, such as Binance or Kraken, the liquidity pools should be big enough to support these stressful times.