There are a few different ways you can buy Bitcoin in the UK. Each way comes with certain pros and cons.
Digital currencies, blockchain, and cryptocurrency investment options have the headlines gripped at the moment. Yet they are also unregulated, volatile financial instruments carrying high risk. Does the currency that exists in blockchain make for a good investment? Today we take a closer look at how to invest in bitcoin in the UK, and its potential pros and cons.
Recapping Bitcoin
Bitcoin(BTC) is a digital asset that supposedly functions like normal currency but with notable differences. It’s a peer-to-peer system, so no banks taking a cut, but no government regulation either. (Although some of the crypto exchanges comply with regulations.) It’s a finite currency, decentralized, must be mined, and works on blockchain technology to encrypt the data through cyberspace.
Bitcoin is the first and still most popular cryptocurrency. It was created in 2009 by an anonymous person or group known as Satoshi Nakamoto. It’s based on a shared public ledger called the blockchain, which keeps track of all transactions and stores them in chronological order. Like all cryptocurrencies, each bitcoin is unique and can be identified by a unique number called a “hash” or “hashcode.”
Applications of decentralised finance(DeFi) continue to grow day by day. And bitcoin(and others such as Ethereum) is the currency of the DeFi.
Bitcoin transactions are processed by a network of computers around the world called miners. These computers verify every transaction made using bitcoins and add them to the blockchain in a process called “mining”.
Should You Buy Bitcoin?
Bitcoin is an incredibly volatile investment vehicle, so it carries high risk, and you will need a proper crypto investment strategy in place. This is not the venue for FOMO, but rather for serious investors who understand the risks. Ask yourselves these questions:
- Am I happy with the risk/reward ratio?
- Do I actually understand this investment vehicle?
- Am I being motivated to buy at a ‘high’ cycle point from fear of missing out?
- Why did I not invest sooner? Have I convinced myself this is ‘the next big thing’ instead of part of my holistic investment strategy?
If you can’t give solid, research-backed answers, it’s time to do that research. Like any investment, cryptocurrency has risks and rewards and is riskier than traditional investment types. This is not a venue for your life savings or investing more than you can afford to lose. High-risk investments should be kept to a certain percentage of your overall investment value, and never use money that can’t be comfortably lost. That way, your gains are pleasant and your losses are not crippling. As with all investments, do due diligence and don’t pin your hopes on one asset alone.
Fundamentally, bitcoin works the same as other investments. Buy low, sell high, and keep the difference as profit. Bitcoin is very volatile, so it’s critical not to panic and make losses worse by selling during crashes. As an example, someone who invested in Bitcoin in 2020 and sold on 31st December 2021 still would have made a 300% profit. However, the person who bought it at one of its peaks, at the beginning of 2018, would be looking at a 73% loss.
How to Buy Bitcoin in the UK?
Here are several different ways to buy Bitcoin in the UK.
1) Crypto Exchanges
Most people will buy Bitcoin through a centralized cryptocurrency exchange like Coinbase or Kraken. Robinhood also allows for crypto trades. From there, you simply make your purchase and manage the investment, similar to other investments.
Your first step is to sign up for an account at an online exchange. These sites let you use several payment methods such as credit card, PayPal, or bank account to buy Bitcoin, Ethereum or any other cryptocurrency After signing up, you’ll need to verify your identity by uploading your ID and answering security questions. Once verified, you can start trading BTC.
For an average investor, the most important factors to consider while choosing a crypto exchange are reliability, security, and compliance with legal requirements.
For example; crypto exchange Binance has been blacklisted by the UK financial watchdog due to money laundering concerns, and it is no longer allowed to advertise in the UK. As it’s not a UK-based company, it is still on the market, but cannot register with the FCA to operate in the UK legally. While investors can technically still access it, we’d suggest extreme caution.
The security of your investments is another issue. There are plenty of instances where crypto exchanges got hacked and the assets of the users stolen. Although the risk of getting hacked is relatively low when you use a credible platform, you may still want to use a cold wallet(we’ll explain it in a bit) for your crypto investments.
Although crypto exchanges are more user-friendly, they are centralized systems that higher charge fees for trading. Another option is using the P2P exchanges directly.
2) P2P Exchanges
You can also buy cryptocurrency via a peer-to-peer exchange. A P2P crypto exchange is a platform that allows cryptocurrency buyers and sellers to transact directly with each other without a third-party intermediary. The biggest advantages of P2P Exchanges are lower fees and more flexible payment options. However, there are also some drawbacks such as lower speed and being less user-friendly.
3) Buy Bitcoin from ATMs
One of the convenient ways to buy Bitcoin in the UK is to use an ATM machine. These machines usually offer a wide range of payment options, including bank cards and cash. They can be found at some grocery stores, bars, and even corner shops in some countries. However, they can also be a bit expensive, as they typically charge a fee of around 5-8%.
4) Be a Miner
You can, of course, invest in a mining rig. Bitcoin mining is the process of creating new bitcoins by solving complex cryptographic puzzles. The solution to each puzzle results in a new “block” being added to the blockchain, and when a block is added, miners are rewarded with newly created bitcoins.
There are several ways to participate in Bitcoin mining. You can buy a dedicated mining hardware, build your own mining computer, design and build a custom mining rig using your home PC motherboard, or you can join a mining pool. Once you have installed the operating system and downloaded the blockchain software, you can begin mining.
Where You Hold Your Bitcoins Matter
You can either keep your bitcoins in a wallet someone else controls (eg. a centralized cryptocurrency exchange) or a self-custodial wallet you directly control. Self-custodial wallets are encrypted locations where you store your cryptocurrencies. Most of the crypto exchanges also offer digital wallet solutions. When you buy Bitcoin, you can choose where to receive it. It can be a Bitcoin ‘address’ of your own if you have a wallet.
There are two types of self-custodial wallets.
- A ‘hot wallet’ is a storage option for Bitcoin that’s internet-connected, so you can trade and purchase with your crypto.
- Cold wallets, on the other hand, are completely offline. You can’t use the currency, but it can’t be accessed by hackers, either. Making it a bit harder to reach can also be good for some investors who are easily distracted by the most recent market sentiment. FOMO is not an ideal approach when investing.
Other Ways to Invest in Bitcoin in the UK
You can invest in Bitcoin without really owning it. There are several financial products that allow you to have exposure to Bitcoin and other digital currencies.
1) Buy Relevant Shares
You can invest in crypto exchanges, or buy shares in companies that use Bitcoin as a currency. You could also opt to invest in blockchain network companies directly.
2) ETFs
There are several high-quality bitcoin and crypto ETFs you can look at, if you’d prefer. This gives you a chance to buy into the fund through your regular investment broker and means you can get much of the benefits of rising cryptocurrency without having to trade it yourself. The S&P Dow Jones Indices announced further index tracking for Bitcoin, too.
3) Bitcoin Funds
While these will remain volatile, it is going to be an easier way to sell and buy on the market than investing directly. Some funds also offer partial exposure to Bitcoin alongside traditional assets, for the cautious. Blackrock, a globally known asset manager, has these.
4) Crypto Options
Somewhat similar to the Forex market, this means you can buy or sell at a ‘strike price’, a set price, and can take a speculative position instead of buying the currency outright.
It’s worth noting that all of these options will have the same fee sets- trading, escrow, withdrawal, deposit, and transactional- that come with normal investment, as they’re traded through ‘traditional’ investment arenas, not the blockchain directly. But they are valuable alternate ways to invest in Bitcoin for more cautious investors, investors who don’t want to mine or trade the crypto directly, or people who want to keep their investments consolidated in one place.
Banks in the UK Accepting Crypto
Most UK major banks will let you move money between your bank account and regulated crypto exchanges. They will, however, sometimes action temporary suspensions if issues arise- Starling Bank recently had one of these pauses. Visa, Mastercard, and PayPay all allow transactions for Bitcoin, too. There’s even some talk of the Bank of England launching ‘Britcoin’ as a central bank-backed digital currency.
The advancements in technology change the nature of financial services and products. As more and more global institutions become interested in cryptocurrency, we may well see the market swings settle down and it becomes more viable as an investment product, too. As you can see, there are plenty of ways to diversify and buy Bitcoin in the UK.
An accomplished financial analyst and writer, holds a Master’s degree in Finance from the University of Exeter, bringing his expertise to guide readers through the world of financial markets and investment strategies.
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