Uk Bitcoin Investment: How Much Should You Invest?

Bitcoin is a decentralised digital currency, free from the control of any government or institution. It is the most renowned and famous cryptocurrency in the world, continuing to make headlines and spark global debates about its viability as an investment.

Bitcoin is highly volatile and subject to sharp rises and falls within short periods, often driven by market sentiment and speculation. Its value is purely dependent on what the next person is willing to pay.

This volatility presents a risk to your investment, and you may lose your funds. Cryptoassets are high-risk and currently unregulated, with no investor protection in the UK or EU. There is a real risk of losing your entire investment.

Additionally, profits from cryptocurrency sales may be subject to Capital Gains Tax under UK law.

How to buy Bitcoin in the UK

Step 1: Set up a wallet

Firstly, you'll need to set up a wallet to store, receive and send bitcoin. There are several wallet apps available, including Trust Wallet, Coinomi, Muun wallet, and blockchain.com.

Step 2: Choose an exchange

Next, you'll need to choose a cryptocurrency exchange to buy bitcoin. Some of the most popular options in the UK include:

• EToro
• Coinbase
• Binance
• Kraken
• CoinJar
• Uphold
• OKX
• Bitget
• Coinmama
• Guarda
• Crypto.com
• Gemini
• Bitfinex
• CEX.Io
• Bitstamp
• SFOX
• Poloniex
• Bittrex

Step 3: Make your purchase

Once you've chosen an exchange, you'll need to create an account and verify your identity. Then, you can deposit funds into your account and use them to purchase bitcoin. The specific process will vary depending on the exchange you choose, but most exchanges will allow you to purchase bitcoin with a bank transfer, credit card, or debit card.

Step 4: Store your bitcoin

Finally, once you've purchased your bitcoin, you'll need to decide where to store it. You can keep your bitcoin in your exchange account, but this is generally not recommended due to the risk of exchange hacks. A more secure option is to use a non-custodial or hardware wallet, such as Ledger or Trezor.

How much to invest in Bitcoin

Overview

Bitcoin is a decentralised digital currency, free from the control of any government or institution. It is the original cryptocurrency, the most famous, and the most popular in the world.

Bitcoin is highly volatile, and its value can change rapidly. This means that investing in Bitcoin is high-risk, and you should only invest what you can afford to lose.

How Much to Invest

The amount you should invest depends on your personal financial situation. It is recommended that you invest between 5% and 30% of your total investment capital in Bitcoin, depending on your risk appetite.

Before investing in Bitcoin, it is important to ensure you have an emergency savings buffer and that you have paid off any high-interest debt.

Choosing an Exchange

When deciding how much to invest in Bitcoin, you should also consider the minimum investment requirements of your chosen exchange. For example, eToro has a minimum deposit of US$100 (£80), while CoinJar has a minimum deposit of £10.

Taxes and Fees

In the UK, profits from Bitcoin are considered taxable assets and are subject to Capital Gains Tax. There may also be fees associated with buying and selling Bitcoin, such as trading fees, deposit fees, and withdrawal fees, so be sure to check the requirements of your chosen exchange.

Investment Strategies

There are two main investment strategies when it comes to Bitcoin: passive and active investing.

Passive investors typically employ a 'buy and hold' strategy, holding onto their Bitcoin in the hope that its value will increase over time.

Active investors, on the other hand, take advantage of the market's volatility, buying and selling frequently to generate quick returns. This strategy is high-risk and requires a good understanding of the market.

Diversification

To reduce risk, it is generally recommended to diversify your investment portfolio by investing in a range of different assets. This could mean investing in several different cryptocurrencies or other types of financial assets, such as shares, funds, or bonds.

Final Thoughts

Investing in Bitcoin can be a lucrative opportunity, but it is important to remember that it is a high-risk endeavour. Before investing, make sure you do your research, understand the risks, and only invest what you can afford to lose.

How to store Bitcoin

When you buy Bitcoin, you're given ownership of the amount purchased, and two keys: a public key and a private key. The public key is used to encrypt information and is your wallet address. The private key allows you to decrypt the information or access your Bitcoin. This is the key that needs to be stored and safeguarded.

There are several ways to store Bitcoin, each with its own advantages and disadvantages. Here are some of the most common methods:

• Hardware Wallets: These are physical devices, similar to a USB drive, that store your private keys offline. They are considered one of the safest options for storing Bitcoin as they are not connected to the internet and are less susceptible to hacking attempts. Examples include the Ledger Nano X and Trezor Model T.
• Paper Wallets: This method involves printing out your private and public keys, usually as a string of characters and scannable QR codes. Paper wallets provide an affordable and secure way to store Bitcoin but have a high risk of user error or wallet damage.
• Mobile Wallets: These are applications that can be installed on your smartphone, allowing you to send, receive, and store Bitcoin. Mobile wallets are convenient and easy to use but may be less secure than other options.
• Desktop Wallets: These are programs that reside on your computer. They are not considered the safest storage method as they are always connected to the internet.
• Web-based Wallets: These wallets are hosted by a web service and are not secure as you're allowing a third party to store your keys.
• Custodial Wallets: In this arrangement, a third party, such as an exchange, stores your private keys for you. While this option is convenient, it comes with the risk of hacks and theft.
• Non-Custodial Wallets: These wallets give users full ownership of their private keys, without the involvement of a third party.

It is important to note that no storage method is 100% secure, and there is always a risk of losing your Bitcoin due to theft, computer failure, loss of access keys, or other reasons. It is recommended to use a combination of storage methods, such as a hardware wallet for long-term cold storage and a mobile wallet for spending and transacting. Additionally, it is crucial to back up your Bitcoin wallet regularly and enable security measures such as two-factor authentication to protect your private keys.

Risks of investing in Bitcoin

Volatile and Fluctuating Market

The price of Bitcoin is constantly changing. With such an unpredictable market, there's no telling if you will get a return on your investment. To avoid a massive loss, keep a vigilant eye on the market and make small investments.

Cyberattacks and Fraud

Bitcoin is technology-based, which leaves this investment open to cyberattacks. Hacking is a serious risk since there is no way to retrieve your lost or stolen Bitcoins. Fraud is also a concern, with fake exchanges duping unsuspecting investors out of their Bitcoins.

Little or No Regulation

The Bitcoin market is operating without any major regulations. The government doesn't have a clear stance on cryptocurrency, and it is not taxed, which could lead to problems should Bitcoin pose competition for government currency.

Technology Reliance

Bitcoin is an online exchange that is entirely reliant on technology. Without technology, cryptocurrency is worthless. With Bitcoin being 100% technology-based, Bitcoin owners are more vulnerable to cyber threats, online fraud, and system shutdowns.

Block Withholding

New Bitcoins are created by solving mathematical equations called "blocks". A mining pool can use computational power to mine a block and hide it from honest miners, allowing a select few to benefit while others lose out.

Ponzi Scheme

Bitcoin has been referred to as a Ponzi scheme, with people at the top benefiting from the ignorance of others. As more people buy into Bitcoin, it creates a bubble economy that will eventually burst, leaving many people holding cryptocurrency that has become worthless.

Tax on Bitcoin investments

Bitcoin is legal in the UK, but it is not legal tender. If you are a UK resident, you may have to pay capital gains tax on profits from selling Bitcoin because it is not eligible to be held in an ISA (a tax-free savings and investment account).

Additionally, if you receive Bitcoin from your employer as payment, it is subject to income tax and National Insurance. If HMRC considers you to be making money from cryptocurrencies as a business, you will be taxed in the usual way that applies to companies.

The profits from the sale of cryptocurrencies may be subject to capital gains tax under UK law. Bitcoin is considered a property for tax purposes in many regions, including the UK, so any profits made from selling Bitcoin at a higher price than it was purchased are subject to capital gains tax. Using Bitcoin to purchase goods or services may also be a taxable event. It is important to keep detailed records of transactions and consult with a tax professional.

Frequently asked questions