Bitcoin is quickly closing in on all-time high, with the price of the cryptocurrency surging since September and now at more than $18,500 a coin.
There are predictions it could surpass the previous peak of more than $19,000 a coin and even top $20,000 by the end of this year.
Many investors may be tempted to buy some bitcoin, even though it looks like a speculative boom, but even experts who back the cryptocurrency say it should only be a small part of a portfolio and people must realise it is high risk.
While crypto watchers say the latest boom has been driven more by professional investors, there is evidence more armchair enthusiasts are trying to get in on the action, especially as it continues to make headlines.
When the price boomed in late 2017, the number of established exchanges were few and far between, meaning those buying it faced a Wild West of providers if they wanted to buy in.
Bitcoin has surged since September and its price is closing in on its all-time high
Investment platform eToro said November was on track to see the most investment into bitcoin in three years, while interest could surge even more if the cryptocurrency tops $20,000 a coin.
This time around, it is easier to buy bitcoin, although there are a number of hoops and challenges to get through first.
Money held in cryptocurrencies is unprotected and the coins are among the most volatile investments around, buying bitcoin can still be complex and may be difficult for casual investors to get their head around.
With that in mind, This is Money has put together a guide comparing some of the most popular ways to invest, how much they cost, and how it can be paid for.
If you do buy into bitcoin
Find out how bitcoin and the blockchain works, so that you have some understanding of the system, the ledger, the major players and the public and private key elements.
Remember bitcoin yields nothing and its main source of value is scarcity. Most bitcoin activity is trading not investing.
Research coin wallets, the digital vaults where cryptocurrency is held, and consider security carefully. Bitcoins have been stolen before, understand how this happened.
Be prepared for extreme volatility. The price can move by 20 per cent in one day and you could easily lose half of your cash in a far quicker time that investing in the stock market.
Consider how you would cash in any gains. There are reports that this has proved hard for some people. A time of market stress could lead to people being locked in and unable to trade.
Read our guide to How to be a successful investor, which looks at the far less high octane world of long-term investing and how to make it a success.
What is bitcoin?
The digital currency that most will be familiar with is free from government interference and can be shared instantly online. It doesn’t rely on trusting one central monetary authority.
The underlying technology is blockchain, a financial ledger maintained by a network of computers that can track the movement of any asset without the need for a central regulator.
Where can you buy bitcoin?
The most common place to purchase bitcoin and other cryptocurrencies is what is known as a cryptocurrency exchange.
These are platforms, mobile apps and websites which allow investors to purchase bitcoin with government, or fiat, money or with another cryptocurrency.
According to research by the Financial Conduct Authority published earlier this year, 77 per cent of people surveyed who had bought cryptocurrency in Britain did so through an online exchange.
The five most popular exchanges among UK cryptocurrency investors, according to a survey by the FCA earlier this year
Most did so through exchanges not based in the UK, with the five most popular exchanges among consumers – Coinbase, Binance, Kraken, Bittrex and Bitfinex – all based overseas.
What’s in your wallet?
Those who wish to hold bitcoin for the purpose of sending or spending it, rather than simply to make a profit from an increase in the price, will likely need a cryptocurrency ‘wallet’.
This contains public and private ‘keys’, which help provide details and keep users’ cryptocurrencies safe.
It is often recommended buyers store coins in a private wallet after buying them, rather than simply leave them on an exchange.
However, research from the FCA found 46 per cent of buyers did just that, more than the 34 per cent who moved it into a wallet.
In some instances, this means investors will have to pay foreign exchange fees as these exchanges will only accept deposits in dollars or euros.
While many advocates of cryptocurrencies like bitcoin tout the privacy and anonymity they can offer holders and spenders, it is worth noting exchanges will ask investors to provide email addresses, phone numbers, personal details and identity documents before they can fund their accounts with sterling deposits.
Exchanges state this is to prevent fraud and protect their investors, as well as to comply with anti-money laundering and ‘know your customer’ regulations.
As well as that documentation, exchanges may levy a variety of fees depending on the payment method investors opt for.
What will I pay?
There can be fees for funding an account with a debit card or bank transfer, as well as the trading costs of actually buying bitcoin.
These trading costs can eat into how much bitcoin someone ends up buying, in the same way that dealing fees on DIY investment platforms can affect how many shares or funds investors end up with.
The platforms we looked at vary in their costs. Some charge a flat fee, some charge a percentage and others also include a ‘spread margin’.
This is how some platforms which otherwise don’t charge a fee make their money, as this margin means investors get less for their money than the underlying price of what they are buying would suggest, as platforms and exchanges take a built-in cut.
|Exchange:||Location:||Sign up with:||Must provide:||Outage rating on Down Detector:|
|Coinbase||San Francisco, USA||Email address||Passport or government-issued ID, phone number, personal details||3.6/5|
|Binance||Malta||Email address or mobile number||Government-issued photo ID, name, date of birth and address||4.6/5|
|Kraken||San Francisco, USA||Email address||Passport or driving licence, proof of address, name, date of birth and phone number||4/5|
|Bittrex||Seattle, USA||Email address||Government-issued photo ID and a picture of yourself, country of residence, address and date of birth||4/5|
|Bitfinex||Hong Kong||Email address||Two forms of ID, phone number, address, proof of address, bank statement and must be 21||3/5|
Someone buying £500 worth of bitcoin through Coinbase, the most popular exchange among UK investors according to the FCA’s survey, would be charged a 1.49 per cent fee, while the exchange also charges a spread of around 0.5 per cent.
Together, this would see a buyer billed a £7.45 fee and a £2.50 spread.
Buying the same amount’s worth of bitcoin through Binance would cost £9 with a debit card or nothing with a bank transfer, coupled with a 50p trading fee as it charges just 0.1 per cent on trades of up to 50 bitcoin.
Kraken would bill someone buying £500 worth a 0.26 per cent fee, so £1.30, although funding the account with a card could incur foreign exchange fees as money is converted into euros.
|Exchange:||Ways to fund an account or buy crypto:||Deposit fees:||Trading fees:|
|Coinbase:||Credit/debit card or faster payment transfer||1.49% for card (trading cost)
Free for transfer
|Spread of around 0.5% plus either a flat fee of between 99p and £2.99 on purchases of between £10 and £200 or 1.49% – whichever is higher|
|Binance:||Credit/debit card or faster payment transfer||1.8% for card
Free for transfer
|0.1% fee when trading up to 50 bitcoin (£914,000)|
|Kraken:||Credit/debit card or faster payment transfer||3.75% + €0.25 for card (money paid in €)
Free for transfer (takes 1-3 business days)
|0.26% fee when trading up to $50,000
0.24% fee when trading up to $100,000
|Bittrex:||Credit/debit card||3% for card plus 2.5% foreign exchange fee when converting £ into € or $||0.2% when trading up to $50,000
0.18% when trading up to $1m
|Bitfinex:||Bank transfer (minimum deposit £10,000)||0.1% with a minimum fee of $60||0.2%|
The same can be said for Bittrex, which charges card and foreign exchange fees, but it also has a similarly low trading cost of 0.2 per cent, or £1 on a £500 trade.
And Hong Kong-based Bitfinex charges the same fee, although the account is aimed at higher rollers with investors having to deposit £10,000 at a time and incurring a deposit fee of 0.1 per cent, with a $60 minimum.
We have broken down the details when it comes to the UK’s five most popular exchanges in the above tables, all of which come with websites and mobile apps and offer two-factor authentication to enable users to better secure their accounts.
We have also included a rating out of five from the website Down Detector, which monitors website crashes and outages, to give potential traders an insight into how reliable their chosen exchange is and how likely it is to go down at an inopportune moment – the higher the score, the better it rates it.
Where else can you buy it?
As well as the five major exchanges outlined above, other trading platforms also let investors buy into bitcoin and other cryptocurrencies.
One of the best-known is eToro, one of a new breed of commission-free dealing platforms aimed largely at younger investors.
While its adverts are primarily about letting investors buy into their favourite companies, the 13-year-old firm started offering cryptocurrency access in 2018.
What about the FCA ban?
From 6 January Britain’s financial regulator will ban the sale of cryptocurrency derivatives to retail customers, over fears that they could cost casual investors massive losses.
This means they will no longer be able to buy into products based on the current or future price of bitcoin, like investment tracker funds which do not hold coins themselves. These derivatives can magnify the gains and, more importantly, the losses investors incur.
But this isn’t a ban on bitcoin itself, meaning exchanges and investment platforms are still an option.
Users can register with an email address and phone number, and must provide proof of address and government ID.
Money can be uploaded via bank transfer, with a minimum deposit of $500, or using PayPal or a debit card, with a minimum deposit of $200.
This means UK investors could be hit with a foreign exchange fee from their bank, while the platform charges 0.5 per cent itself.
And while there are no fees to buy cryptocurrency, how much investors get for their money is affected by a 0.75 per cent spread which eToro charges.
Money and assets deposited onto eToro are held in segregated bank accounts.
The other is Revolut, the banking app which offers users the opportunity to trade anything from bitcoin to gold.
It is mobile-only service and users must identify themselves with the phone number, government ID and a picture of themselves, while some users have suggested the bank asks for proof of funds when they have tried to buy cryptocurrency.
Any bitcoin will be bought and held by Revolut on the investors’ behalf, meaning they won’t actually possess it themselves, but do still have the rights to it, even if they can’t use it to buy anything.
Investors can load money onto Revolut from another bank account and exchange up to £1,000 into bitcoin for free.
Above that those who don’t subscribe to either of its paid for accounts are charged 0.5 per cent, while it takes 2.5 per cent on the exchange rate too.
|Lloyds||Has banned credit card purchases|
|Nationwide Building Society||Yes except for transfers to Coinbase|
|NatWest/Royal Bank of Scotland||Yes|
|Santander||Yes – some reports of blocked Coinbase transactions|
|Virgin Money||Has banned credit card purchases|
|Monzo||Yes, but customers should ‘stick to reputable exchanges and reasonable amounts’|
|Starling||No, Starling has blocked cryptocurrency purchases|
|Source: Crypto Buyers Club|
Will your bank let you buy it?
While Britain’s biggest banks are unlikely to be that keen on cryptocurrencies, most still won’t stand in investors’ way if they want to buy into them.
With the exception of Nationwide Building Society, which according to UK advice website Crypto Buyers Club has blocked bank transfers to Coinbase since 2018, all of Britain’s major high street names let customers use their bank accounts and debit cards to fund deposits to exchanges or cryptocurrency purchases, although many have banned credit card transactions.
Perhaps ironically, some of those least keen on bitcoin are the new breed of digital challenger banks, with Starling blocking cryptocurrency purchases.