Uk Guide: Investing Money In Bitcoin

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, and it operates on a technology called blockchain.

If you're thinking about investing in Bitcoin, it's important to know that it's a high-risk investment. Cryptoassets are highly volatile and currently unregulated, so there's a real risk of losing all your money.

If you're still interested in investing in Bitcoin, the first step is to choose a reputable cryptocurrency exchange and create an account. You'll need to verify your identity and deposit funds into your account using your preferred payment method. Once you've purchased Bitcoin, you can store it in a digital wallet.

It's also important to remember that profits from cryptocurrency sales may be subject to Capital Gains Tax under UK law.

Choosing a Bitcoin exchange

Reputation and Security:

Look for a well-respected and reputable exchange that prioritises security. Coinbase and Binance, for instance, have established themselves as trusted industry leaders. Ensure the exchange has robust security protocols and features like two-factor authentication to protect your account. Your digital security is paramount, so choose an exchange that values it.

Transaction Fees:

Transaction fees can vary significantly between exchanges, so it's essential to compare these costs. Some platforms, like eToro, charge relatively higher fees, while others, like Uphold, offer transparent pricing with no hidden fees. Consider your investment budget and timeline when evaluating fee structures.

User Experience and Customer Service:

The user experience and customer service provided by an exchange are also crucial factors. Choose an exchange with a user-friendly interface that is easy to navigate and use, especially if you're a beginner. Additionally, consider the exchange's customer service reputation and response times, as you'll want timely support if you encounter any issues.

Payment Methods:

Different exchanges support different payment methods for funding your account. Common options include bank transfers, debit or credit cards, and payment platforms like PayPal. Each method has its own fees and processing times, so select an exchange that aligns with your preferred payment method and investment timeline.

Cryptocurrency Offerings:

While you're primarily interested in investing in Bitcoin, consider whether you may want to explore other cryptocurrencies in the future. Some exchanges offer a wider range of crypto assets, allowing you to diversify your portfolio. For example, Uphold supports over 250 crypto assets, while Coinbase supports multiple cryptocurrencies, including Bitcoin.

Regulatory Compliance:

Given the evolving regulatory landscape of cryptocurrencies, it's important to choose an exchange that complies with relevant regulations and is authorised by the appropriate regulatory body, such as the Financial Conduct Authority (FCA) in the UK. This provides an extra layer of security and helps ensure the exchange is operating within the legal framework.

Remember, investing in Bitcoin is a high-risk endeavour, and you should only invest what you can afford to lose. Conduct thorough research, evaluate multiple exchanges, and consider their features, fees, security, and regulatory compliance before making your decision.

Setting up and securing an account

• Choose a Bitcoin wallet: Before purchasing Bitcoin, you need to set up a Bitcoin wallet to store, receive and send Bitcoin. There are different types of wallets available, including mobile wallets, software wallets, and hardware wallets. Mobile and desktop wallets are convenient and suitable for beginners, while hardware wallets are considered the most secure option as they store your Bitcoin offline. Examples of popular Bitcoin wallets include Bither Wallet, Coinbase Wallet, and Uphold BTC Wallet.
• Register with a crypto exchange: To buy Bitcoin, you'll need to register with a cryptocurrency exchange platform such as eToro, CoinJar, or Uphold. These platforms allow you to buy, sell, and trade cryptocurrencies directly from your smartphone, tablet, or computer. When choosing an exchange, consider factors such as security, fees, payment methods, and the range of cryptocurrencies offered.
• Fund your account: Once you've registered with a crypto exchange, you'll need to fund your account using a payment method such as a debit card or bank transfer. Different exchanges may offer different funding options, so be sure to check the available methods before signing up.
• Purchase Bitcoin: After funding your account, you can now purchase Bitcoin. Research the market and choose an appropriate time to buy based on the current price and any trends you identify. You can then use the crypto exchange's web or mobile app to buy Bitcoin with your funded account.
• Configure your Bitcoin wallet: Choose a secure password for your Bitcoin wallet and enable additional security measures if available, such as two-factor authentication. It's crucial to keep your private keys safe and secure. Do not share them with anyone, as this will compromise the security of your wallet. Consider creating backups of your private keys and storing them offline in a secure location.
• Transfer Bitcoin to your wallet: Once you've purchased Bitcoin, you can choose to leave it on the crypto exchange or transfer it to your Bitcoin wallet. If you plan to hold your Bitcoin for the long term or prefer to have more control over your assets, transferring it to your wallet is recommended. This way, you can monitor the value and decide when to sell or trade your Bitcoin.

Remember, investing in Bitcoin is a high-risk endeavour, and the value of your investment can fluctuate significantly. Always ensure you understand the risks involved and never invest more than you are prepared to lose.

Funding your account

Once you have opened an account with a crypto exchange, the next step is to fund your account. Most exchanges allow you to connect your bank account directly or link a debit or credit card. Other exchanges let you use PayPal or other payment services like NETELLER to add money to your account.

Pro Tip: Most exchanges will let you buy crypto using a credit or debit card. However, while this is a quick and convenient option, be sure to keep an eye on the fees, as this convenience often comes with a price. In our experience, funding your crypto account via bank transfer is usually the cheapest (and often free) method, but it can take 3-5 business days for the funds to land.

Also, check with your bank before buying crypto with a credit card, as we've seen cases of this being processed as a cash advance, meaning high interest rates and no interest-free grace period.

When you've added funds to your account, the last step is to buy some Bitcoin.

Fees to consider

There are several factors that influence the fees you'll need to pay to purchase Bitcoin. These include the platform you choose, the payment method, and the amount of Bitcoin you're looking to buy. Here are some things to keep in mind:

• Exchange fees: Most platforms charge a fee for buying, selling, and trading Bitcoin. These fees are charged by the exchange and can be a percentage of the total transaction amount or a fixed amount.
• Payment method: Your choice of payment method will affect the fees. Using a credit card or PayPal might incur higher fees compared to bank transfers or cryptocurrency deposits.
• Withdrawal fees: If you want to transfer Bitcoin to a personal wallet, additional withdrawal fees may apply, along with network fees that will vary depending on network congestion.

Examples of platforms and their fees

• EToro: eToro is a popular platform that offers low fees and accepts debit/credit cards. The minimum deposit is US$100 (about £80), and there is a 1% trading fee on all crypto positions. Withdrawals incur a fee of US$5 (£4).
• Coinbase: Coinbase charges a 3.99% fee to buy Bitcoin with a debit card. It also offers a native wallet app for safe storage on the move and two-factor authentication for added security.
• Crypto.com: Crypto.com offers a user-friendly mobile app and supports free GBP deposits made via personal bank accounts. It charges a 2.99% fee for debit card payments.
• Binance: Binance charges a 1.8% fee for buying Bitcoin with a debit card. It also offers the option to deposit funds via UK bank transfer for a fee of £1, and buying Bitcoin via the exchange costs a 0.1% commission.
• Bitstamp: Bitstamp does not charge any trading commissions on monthly volumes of under $1,000 (about £800). However, it charges a 4% fee for depositing funds with a UK debit card.

Placing a buy order

Once you have chosen a reputable cryptocurrency exchange, completed the KYC (Know Your Customer) process, and deposited funds into your account, you are ready to place a buy order for Bitcoin.

• Navigate to the Bitcoin trading section of the exchange.
• Select the amount of Bitcoin you wish to purchase. You can either choose a market order for an instant purchase at the current price or a limit order to specify a price you are comfortable with.
• Confirm your transaction.

After purchasing, it is important to transfer your Bitcoin to a secure digital wallet. This can be a 'hot' wallet, which is connected to the internet for easy access, or a 'cold' wallet for superior security.

Managing Your Investment

• Monitor market trends and adjust your investment strategy accordingly.
• Set up price alerts to stay informed about any significant price movements.
• Periodically rebalance your crypto portfolio to align with your financial goals and risk tolerance.

Storing Bitcoin securely

Bitcoin is a decentralised currency, which means that it is not backed by a bank or government. This means that users need to store their Bitcoin themselves, which can be complicated. If you lose your Bitcoin, it is very unlikely that you will be able to recover it.

There are several ways to store your Bitcoin securely, including hardware wallets, multi-signature wallets, and cold storage wallets.

Hardware Wallets

Hardware wallets are physical devices, similar to a USB stick, that store your private wallet keys offline. They are designed to be resistant to both physical and digital attacks and are considered one of the safest ways to store Bitcoin. They are also relatively user-friendly, although they are not free to use.

Multi-Signature Wallets

Multi-signature wallets require multiple private keys to move Bitcoins. This can be used to require agreement from multiple people to spend, eliminate a single point of failure, or as a form of backup. They are cheaper than hardware wallets and can be nearly as convenient.

Cold Storage Wallets

Cold storage wallets, also known as offline wallets, are not connected to the internet and are considered the safest way to store Bitcoin. They can be stored on a USB drive, paper, or in a physical "bitcoin". However, paper wallets are outdated technology and are not recommended for storing large amounts of Bitcoin as they can be lost, damaged, or stolen.

Other Tips for Storing Bitcoin Securely

• Only keep small amounts of Bitcoin on your computer, mobile device, or server for everyday use and keep the rest in a safer environment.
• Back up your entire wallet early and often, and store the backups in multiple secure locations.
• Use a strong password that is at least 16 characters long and contains a mix of letters, numbers, and punctuation marks.
• Keep your software up to date to prevent security vulnerabilities.
• Use two-factor authentication to add an extra layer of security.
• Don't share your private keys or store them online.
• Be careful with online services and only choose reputable and secure providers.
• Don't keep your Bitcoin in an exchange for longer than necessary.
• Don't boast about your crypto holdings publicly, especially under your real name or identifiable address.
• Always verify that you are logging into the correct address to avoid phishing scams.
• Use a secure Wi-Fi connection when accessing your Bitcoin wallet or exchange account.
• Don't click on any unfamiliar emails, links, or attachments, especially on Twitter.

Frequently asked questions