Uk Bitcoin Stock: A Guide To Investing

Bitcoin is a decentralised digital currency, free from the control of any government or institution. It was created in 2009 by a person or organisation called Satoshi Nakamoto. It is the original cryptocurrency and the most famous.

In this article, we will take a look at how to invest in Bitcoin in the UK, including the steps to buying Bitcoin, the risks involved, and some alternative ways of investing in cryptocurrency.

How to buy Bitcoin in the UK

Step 1: Research and Understanding

Before buying Bitcoin, it is important to understand the risks involved. Cryptocurrencies are highly volatile and currently unregulated, which means 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.

Step 2: Choosing a Bitcoin Exchange

You can buy Bitcoin through a crypto exchange such as eToro, CoinJar, or Uphold. These platforms allow you to buy and sell Bitcoin and other cryptocurrencies directly from your smartphone, tablet, or computer. When choosing an exchange, consider factors such as transaction fees, security protocols, user experience, and customer service reputation.

Step 3: Setting Up and Securing an Account

Create an account with your chosen crypto exchange, ensuring you complete the Know Your Customer (KYC) process to verify your identity. Enable security features such as two-factor authentication and use a strong, unique password to protect your account.

Step 4: Funding Your Account

To purchase Bitcoin, you will need to fund your exchange account. You can typically do this by linking a bank account, using a debit or credit card, or using payment platforms like PayPal. Each method has different fees and processing times, so choose the one that suits your investment timeline and budget.

Step 5: Placing a Buy Order for Bitcoin

Once your account is funded, navigate to the exchange's buying section, select Bitcoin, and choose a market or limit order. A market order will allow you to purchase Bitcoin instantly at the current price, while a limit order lets you specify a price you're comfortable with.

Step 6: Storing Your Bitcoin Securely

After purchasing Bitcoin, you can choose to store it in a digital wallet. There are two types of wallets: "hot" wallets, which are connected to the internet for easy access, and "cold" wallets, which are external devices not connected to the internet and offer superior security. Treat the private keys to your wallet with utmost security, as losing them will result in losing your Bitcoin.

Step 7: Managing Your Investment

Monitor the market trends and adjust your investment strategy as needed. Stay informed about market conditions and set up price alerts to make timely decisions. Consider rebalancing your crypto portfolio periodically to align with your financial goals and risk tolerance. Remember, investing in Bitcoin is a risky venture, and you should only invest what you are prepared to lose.

How to store Bitcoin safely

There are multiple ways to store Bitcoin, and each method has its pros and cons. Here are some of the most common methods:

• Hardware wallets: These wallets allow users to store their private keys in cold storage, making them inaccessible to hackers. Hardware wallets can be brought online to make transactions, and the signing of a transaction occurs on the physical hardware device itself, separate from the user's computer, making it more secure. However, hardware wallets can be confusing for less technical users and typically cost around £100.
• Mobile wallets: Mobile wallets are hot wallets held on your smartphone, usually self-custodial. They are quick and easy to use, making them good for transactions. However, they can be less secure than cold wallets and are not recommended for storing large balances. It's important to properly secure and back up a mobile wallet to prevent potential loss of funds.
• Paper wallets: Before the invention of hardware wallets, paper wallets were the only cold storage option available. A paper wallet can be created by printing out a private and public key. Once funds are sent to the public key, they are taken offline and can only be accessed by sweeping the private key into a hot wallet. Paper wallets are inexpensive but have a high risk of user error or wallet damage.
• Exchange wallets: When you buy crypto on an exchange, the funds automatically go to your exchange wallet. This is a custodial hot wallet where the exchange holds the private keys for you. Exchange wallets are convenient and support a wide array of assets, but they lack total control over your private keys and are at risk of hacks and theft.

To ensure the safe storage of your Bitcoin, it is recommended to use a combination of hardware and mobile wallets, depending on your allocation and use case. For added security, you can also enable two-factor authentication and use a strong, unique password for your wallet. Remember to create backups for your wallets and educate yourself on how to use them properly to minimize the chance of user error.

Risks of investing in Bitcoin

Bitcoin is the most successful currency today, but with any new frontier, there are bound to be some obstacles. Here are some of the 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. Make small investments; they’ll be more beneficial in the long term.

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. In addition to hacking, there is a fair amount of fraud in the bitcoin market. This lack of security creates a big risk for investors. While systems have been created to deal with these problems, security remains a big issue.

Little or No Regulation

Currently, the bitcoin market is operating without any major regulations. The government doesn’t have a clear stance on cryptocurrency; the market is just too new. It is not taxed, which can make it enticing as an investment opportunity. However, a lack of taxation could lead to problems should bitcoin pose competition for government currency. As of now, cryptocurrency is not a widely accepted currency, but the future is ever-changing. There’s no telling what the state of the bitcoin market could be in a few years’ time.

Technology Reliance

Bitcoin is an online exchange that is reliant on technology. Coins are digitally mined, exchanged via smart wallet and kept in check using various systems. Without that technology, cryptocurrency is worth nothing. With a currency that is 100% technology-based, bitcoin owners are more vulnerable to cyberthreats and online fraud.

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 instead of reporting the new block to the network. Essentially, this is a way for a select few to reap the benefits, while others are left with nothing.

Bitcoin's legality in the UK

Bitcoin is legal in the UK, and all UK residents can buy Bitcoin and other cryptocurrencies from crypto exchanges. However, it is not considered legal tender.

The UK government takes a regulatory approach to set the bar and inform people about the risks to help protect them from losses. While the term 'cryptocurrency' contains the word 'currency', in the UK, cryptocurrency is classified by HMRC as digital assets or 'crypto assets', subject to capital gains or income tax. They are not qualified as official currencies like the sterling pound.

The Financial Conduct Authority (FCA) has oversight of the cryptocurrency's anti-money laundering (AML) and counter-terrorism financing (CTF) activities. Therefore, UK crypto exchange operations need to be FCA registered, except for some crypto asset services, which can obtain e-licenses instead.

The FCA has introduced arrangements to reduce and eliminate money laundering risks in trading crypto exchanges in the UK. Crypto businesses are obliged to identify and evaluate the risks related to AML and CFT. After the risk assessment, businesses must develop policies and strategies to eliminate these risks.

HMRC taxes crypto assets like Bitcoin and Ethereum. Income Tax can be applied to the commercial earnings of those engaged in trade. So, HMRC uses two separate tax systems for individuals and businesses trading crypto assets.

Tax on Bitcoin in the UK

Bitcoin and other cryptocurrencies are taxable in the UK. Her Majesty's Revenue Service (HMRC) treats cryptocurrencies as property, not as a currency. This means that any profits made from selling Bitcoin at a higher price than it was purchased are subject to capital gains tax. If you are an individual holding crypto assets like Bitcoin as a personal investment, you may have to pay capital gains tax when you sell them because they are not eligible to be held in an ISA (a tax-free savings and investing account).

The first £12,570 of profit from the sale of Bitcoin is tax-free. If you pay a higher rate of income tax, you’ll pay a flat fee of 20% on gains thereafter. If you pay a basic-rate income tax, capital gains taxes depend on how much you’ve earned. To work out how much you need to pay, take your total taxable gains and deduct your tax-free allowance of £12,300. You’ll pay 10% on gains within the basic income tax bracket, and 20% tax on figures greater than that.

If you’ve earned crypto from activities like working for a decentralised autonomous organisation (DAO) or from mining, you’ll pay income tax and national insurance on your profits. If your total income or capital gains for the year are below certain thresholds, you might not have to pay any tax. And you don’t have to pay any taxes for simply holding crypto.

In some circumstances, cryptocurrency-related activity may constitute ‘trading’ and may be subject to income tax, but this is rare. High-frequency transactions may be considered an exception, but most people who hold crypto as an investment are not considered to be "trading".

It is important to keep records of your cryptocurrency transactions. The information which must be kept as a minimum for every transaction includes the type of cryptocurrency, the date of the transaction, whether it was a purchase or a sale, the number of coins purchased, the cost or proceeds in sterling, the cumulative total of each cryptocurrency held, bank statements to prove purchase and sale amounts, and digital wallet addresses.

Frequently asked questions