In the ever-evolving world of finance, cryptocurrency has emerged as an innovative but disruptive force, capturing the hearts of both seasoned and novice investors. However, navigating the complex landscape of cryptocurrencies can be daunting for those new to the space.
In this guide, we will lay out a step-by-step approach for how to invest in cryptocurrency in the UK, the advantages and disadvantages of investing in cryptocurrencies, practical tips for successful investing, and recommendations on the best exchanges to use.
Intermediate Traders and Investors
How to start investing in cryptocurrency in the UK?
Digital assets, led by Bitcoin and Ethereum, have not only challenged traditional financial systems but have also presented new opportunities for building wealth. But how exactly do you buy cryptocurrency and start investing in cryptocurrencies in the UK?
Fortunately, investing and trading crypto is more straightforward than you might think, and there are several options available to you, including:
- Buying cryptocurrency directly: Buying and holding individual cryptocurrencies with the hope of appreciation from the more established coins such as Bitcoin (BTC) or Ethereum (ETH) to investing in new cryptocurrencies or tokens during an initial coin offering (ICO);
- Cryptocurrency mining: Participating in the process of validating transactions and maintaining blockchain networks by providing computational resources. Crypto miners and validators receive rewards in the form of cryptocurrencies, which can be retained as investments or traded for a different currency;
- Investing in cryptocurrency companies: Buying shares of companies with significant cryptocurrency or blockchain technology exposure. These stocks include well-known crypto exchanges, cryptocurrency miners, blockchain technology specialists, digital currency exchange and payment providers, and businesses with sizable cryptocurrency holdings on their balance sheets. Examples include PayPal (NASDAQ: PYPL), Coinbase (COIN), Hut 8 Mining Corp. (NASDAQ: HUT), and Meta Platforms (NASDAQ: META);
- Cryptocurrency-focused funds: You can invest in a cryptocurrency-focused fund for a more diversified approach. Various options are available to you, including exchange-traded funds (ETFs) focused on companies involved with crypto, such as Amplify Transformational Data Sharing ETF (NYSEMKT: BLOK), or an index fund that tracks the most valued crypto coins, such as Bitwise 10 Crypto Index Fund (OTC: BITW);
- Staking: Earning interest on your cryptocurrency holdings by participating in staking programs, in which you lock up your coins for a certain period to support a blockchain network and validate transactions;
- Cryptocurrency derivatives: Trading cryptocurrency futures, options, CFDs, or other derivative products, allows you to bet on the price movements of cryptocurrencies without owning the underlying assets.
Now, let’s explore the process of purchasing crypto directly in detail.
How to buy cryptocurrency in the UK: step-by-step
Here’s a step-by-step guide to buying cryptocurrency in the UK directly through an exchange online.
Step 1: Choose a crypto exchange
Selecting a suitable crypto exchange is the first step to buying cryptocurrency in the UK. While numerous platforms exist, the right one will depend on your investment approach and requirements. Consider the following factors when evaluating online trading platforms:
- Security: Confirm that the exchange employs robust security protocols, including two-factor authentication (2FA), secure warm and cold storage solutions, and SSL technology;
- Fees: Unlike many online brokers that offer commission-free stock and ETF trading, crypto trading still incurs fees for deposits, trades, and withdrawals, which can range anywhere from 0% to 5% per transaction, based on your payment method and transaction type;
- Supported cryptocurrencies: Ensure the exchange provides access to the crypto coins you’re interested in trading;
- User interface and experience: Opt for an exchange with an intuitive, user-friendly interface, especially if you’re new to crypto trading. At this stage, also assess the quality of customer support by reading user reviews and online forum discussions;
- Regulatory compliance: Verify whether the exchange adheres to Financial Conduct Authority (FCA) regulations;
- Mobile app availability: If you prefer trading on the go, make sure the exchange offers a mobile app with all the necessary features;
- Liquidity: Choose an exchange with high liquidity, i.e., the ability to turn your cash into coins quickly and vice versa. To assess liquidity, examine an exchange’s trading volume; a higher volume typically indicates better liquidity;
- Deposit methods: Verify that the crypto exchange supports your preferred deposit method;
- Advanced financial products: If you’re interested in trading crypto but have limited capital, consider leverage and margin trading. This allows you to borrow funds from a broker to boost your buying power and potentially increase profits. However, be aware that complex, high-risk instruments like CFDs are not recommended for conservative or risk-averse investors due to leverage.
Where to buy crypto in the UK?
Prioritizing the security of your investment is crucial when selecting a cryptocurrency exchange.
To securely buy crypto in the UK, make sure to use an FCA-regulated exchange such as eToro, which offers:
- 1% fees for cryptocurrency;
- No account minimums;
- Supports trading in 30+ cryptocurrencies;
- Comprehensive educational resources;
- Staking services;
- Copy-trading: Ability to match the moves of top-performing traders.
Intermediate Traders and Investors
Step 2: Create an account
Now that you’ve decided on a cryptocurrency exchange, it’s time to open an account. To finalize the registration process, you must undergo an identity verification procedure. You’ll typically be asked to provide proof of identity, e.g., a driving license or any other government-issued ID, and proof of address, such as a bank statement, electricity bill, or council tax bill.
Step 3: Fund your account
You have to fund your account before you can start purchasing cryptocurrency. Various deposit methods will typically be available to you, including linking your bank account, using a debit, credit card, or prepaid card, or employing third-party payment methods like PayPal, Neteller, or Skrill.
Depending on the exchange and your chosen funding method, it can sometimes take a few days for the money to reach your account.
Step 4: Decide what cryptocurrency to buy
Choosing the right cryptocurrency for investment requires careful consideration and research. Here are some factors to take into account when selecting a cryptocurrency for your portfolio:
- Market capitalization: A higher market cap generally indicates a more established and widely adopted cryptocurrency and can provide a sense of relative stability compared to lower market cap coins;
- Technology and utility: Understand the underlying technology, the problem it aims to solve, and its potential real-world applications. A cryptocurrency with a strong use case and innovative technology is more likely to succeed in the long run;
- Adoption and partnerships: A cryptocurrency with growing adoption, established partnerships, and integration with mainstream financial systems is more likely to have a sustainable future;
- Market sentiment and trends: Analyze the overall market sentiment and recent trends around a particular cryptocurrency;
- Price history and volatility: Examine the cryptocurrency’s historical price movements and volatility. This can help you understand its price patterns and gauge potential risks and rewards;
- Risk tolerance and diversification: Assess your risk tolerance and consider diversifying your crypto investments across a wide range of tokens to spread risk;
- Long-term potential: Focus on the long-term potential of a cryptocurrency rather than short-term price fluctuations;
- Conduct thorough research: Stay informed about the cryptocurrency market’s latest news, updates, and developments. Always perform due diligence before making any investment decisions.
Keep in mind that the mentioned criteria are not definitive, and there will inevitably be exceptions. Investing in cryptocurrencies is inherently risky and speculative. Be prepared for price fluctuations and only invest what you can afford to lose.
Step 5: Execute your order
Once you’ve chosen the cryptocurrency you want to buy, you can input its ticker symbol, e.g., DOGE for Dogecoin, and specify the number of coins or the pound value of your trade.
Your investment depends on the price of the specific coin and the number of coins you want to acquire. If the price of a token you’re interested in is financially out of reach, particularly true for more established coins like Bitcoin and Ethereum, you can purchase a fraction of one. This approach will allow you to buy crypto based on the cash amount you’re comfortable with, so you may end up with less than, equal to, or more than a whole coin.
There are two main types of orders:
- Market order: An order to buy or sell an asset at the best current price available. When you click “Open Trade,” the order is executed immediately (depending on the market’s liquidity). Additionally, there is a sub-type of market order, out-of-hours order, which is placed when the market is closed and executed as soon as the market reopens;
- Limit order: An order executed when the specified price is reached, allowing you to capitalize on market price fluctuations.
Use dollar-cost averaging (DCA)
Step 6: Keep your crypto safe
After purchasing your cryptocurrency, it’s essential to store it securely to protect it from hacks or theft. Several custody options are available, including:
- Keep the crypto on the exchange: When you buy cryptocurrency, it’s generally stored in a crypto wallet associated with the exchange. If you’re not satisfied with the provider your exchange partners with or want to move it to a more secure location, you can transfer it off the exchange to a separate hot or cold wallet. This transfer may incur a small fee, depending on the exchange and the transfer amount;
- Hot wallets: These are online crypto wallets that run on internet-connected devices like tablets, computers, or phones. Hot wallets offer convenience but come with a higher risk of theft since they remain connected to the internet;
- Cold wallets: Cold crypto wallets are not connected to the internet, making them the most secure option for holding cryptocurrency. They are available as external devices, such as USB or hard drives. You need to be cautious with cold wallets: if you lose the associated key code or malfunctions, you may never recover your cryptocurrency. Although this can happen with hot wallets, certain custodians can help you regain access to your coins if you get locked out.
Step 7: Monitor your investment
Regularly review your cryptocurrency portfolio to ensure it aligns with your investment goals and risk tolerance. Then, adjust your holdings as needed to maintain a balanced and diversified portfolio.
Additionally, keep track of news and developments in the cryptocurrency market, regulatory updates, and technological advancements. This will help you make informed decisions about your investments and identify potential risks or opportunities.
Is cryptocurrency a good investment
The inherently high-risk nature of cryptocurrency makes it an unsuitable asset class for many investors. However, for those who recognize the risks and can handle the volatility, there are valid reasons to believe in the long-term potential of these digital assets.
As a general recommendation, interested investors should begin with modest amounts of capital, gradually increasing investments as they gain more insight. In addition, diversifying across multiple currencies and other assets can help mitigate the effects of underperforming investments.
However, for those new to investing, it might be wise to learn the ropes of traditional investing strategies before diving headfirst into the complex world of cryptocurrencies.
Mistakes to avoid when investing in cryptocurrencies in the UK
Mistakes are a natural part of the investing journey but can be avoided if you know what to watch out for. For an in-depth discussion, refer to our comprehensive guide on the 17 common investing mistakes, complete with advice on how to steer clear of them.
For now, however, here are a few of the most common mistakes to avoid when investing in cryptocurrencies:
- Lack of research: Getting drawn in by the hype and investing in an asset you don’t understand is a recipe for disaster;
- Ignoring fees: Learning about which crypto exchanges offer the lowest fees as well as the best method for depositing and withdrawing funds from your account will save a lot of money in the long run;
- Failing to diversify: Diversify your investments across various cryptocurrencies and other asset classes to minimize risk;
- Chasing short-term gains: Avoid making impulsive decisions driven by short-term market fluctuations. Adopting a long-term investment mindset can assist you in making more deliberate choices when selecting crypto investments;
- Use of leverage: New crypto investors should steer clear of margin trading until they have gained adequate trading experience. Remember, leverage is a double-edged sword, multiplying both your gains as well as losses;
- Not securing your assets: Utilize proper security measures, such as cold storage and two-factor authentication, to protect your crypto investments.
- Falling for scams and fraud: The cryptocurrency market, being a relatively new and unregulated asset class, is rife with scammers. In fact, according to the Federal Trade Commission (FTC), $700 million worth of crypto was stolen in 2021 alone. Stay vigilant against scams and fraudulent schemes like rug pulls and pump and dumps by researching investment opportunities and avoiding deals that seem too good to be true;
- Utilizing overcomplicated trading strategies: Learning technical analysis, conditional orders, and understanding the crypto market takes time. Therefore, like with traditional assets, using dollar-cost averaging to invest in cryptocurrency without engaging in active trading or constantly monitoring crypto charts around the clock is recommended.
Pros and cons of investing in cryptocurrencies
Investing in cryptocurrencies has its pros and cons. Here’s a rundown of some key points to consider:
- High potential returns: As a highly volatile asset, crypto investments can produce astronomical gains. For instance, the price of Ethereum nearly doubled in five months from July to November 2021, providing a considerable return for investors who entered the market at the right time;
- Decentralization: Cryptocurrency operates independently of central banks and is not backed by any federal government, meaning it remains free from government interference and is not influenced by monetary policies;
- Portfolio diversification: Including cryptocurrencies in your investment portfolio can add diversification, as they may not correlate directly with traditional assets like stocks and bonds;
- Global accessibility: Cryptocurrencies can be bought, sold, and traded by anyone with internet access, providing opportunities for investors worldwide. Additionally, unlike stocks, cryptocurrencies can be traded 24/7;
- Blockchain technology: Investing in cryptocurrencies supports the growth of blockchain technology, which has numerous potential applications across various industries.
- Complexity: Understanding the concept of cryptocurrency and blockchain can be challenging, particularly for those who are not well-versed in digital technologies;
- High volatility: Cryptocurrency prices are primarily driven by public perception, as they lack any tangible underlying value resulting in highly volatile price swings, similar to penny stocks. As a result, while risks are inherent in any investment, crypto’s heightened volatility amplifies this factor;
- Fraud: The absence of regulatory oversight has left numerous investors at a loss;
- Security: Hacks are a prevalent issue in the crypto world. And although some exchanges provide private insurance, investors may not have any recourse for recovering their investments if their crypto assets are lost in a hack;
- Regulatory intervention: In response to the growing number of scams, fraud, and money laundering incidents, some governments have initiated regulatory crackdowns on cryptocurrencies. Certain countries have even imposed outright bans on these digital assets. However, in the UK, cryptocurrency remains unregulated. If this changes, on the other hand, a crypto portfolio could be adversely affected, depending on the severity of the regulations;
- Environmental impact: Crypto assets, particularly those that rely on highly energy-intensive mining processes, consume substantial amounts of electricity, often generated by burning fossil fuels like coal and natural gas. When these fuels are burned, they release greenhouse gases into the atmosphere, contributing to global warming and subsequent climate change. In fact, according to a report from the White House, cryptocurrency mining is responsible for releasing 140 million metric tons of CO2 annually into the atmosphere, equating to 0.3% of total global greenhouse gas emissions, surpassing the emissions produced by whole countries.
Sure, cryptocurrencies have become all the rage and continue to grow in popularity, but let’s not forget they’ve only been on the scene for only a little over a decade and have yet to establish themselves as a reliable asset class.
Now, compare that to the stock market with centuries of history under its belt or gold, with a longstanding reputation as a fail-safe store of value going back millennia.
Still, holding some cryptocurrency can enhance your portfolio’s diversification, as cryptocurrencies have historically demonstrated little price correlation with the stock market. And if you predict crypto will gain more widespread adoption in the future, it might be reasonable to include it as part of a diversified portfolio.
However, for each cryptocurrency you invest in, ensure you have a well-thought-out idea explaining why that particular coin will likely endure. Moreover, it’s crucial to remain patient and disciplined, as emotional responses to market volatility often result in poor decision-making.
Disclaimer: The content on this site should not be considered investment advice. Investing is speculative. When investing, your capital is at risk.
FAQs about how to invest in cryptocurrencies UK
How to invest in cryptocurrencies in the UK for beginners?
There are several ways to invest in cryptocurrencies in the UK, including investing in crypto or blockchain stocks and ETFs, investing in cryptocurrency directly by buying individual coins, or trading crypto derivative products such as crypto CFDs.
How to buy cryptocurrencies in the UK?
To buy cryptocurrencies in the UK, you first need to sign up with a regulated online crypto exchange. Once your account is set up, you can select and purchase crypto coins through its platform.
Where to buy cryptocurrencies in the UK?
In the UK, you can buy cryptocurrencies through FCA-regulated exchanges such as eToro.
Is cryptocurrency a good investment?
The volatile nature of cryptocurrency prices makes it a poor choice for risk-averse investors. On the other hand, if you’re comfortable with the risks and have a diversified investment portfolio, allocating a small portion of your investments to cryptocurrencies could potentially enhance your returns. That said, make sure to thoroughly research and understand the market, as well as the specific crypto coins you’re interested in, before making any investment decisions.