In order to effectively navigate the process of buying Bitcoin, it is crucial to explore safe options. Obtaining cryptocurrencies is legal in the UK, but it can pose challenges as the government stresses the need to understand the risks involved.
To effectively traverse the cryptocurrency space, investors should follow key steps, including choosing the right cryptocurrency exchange or broker, setting up a secure wallet, and making informed decisions about payments and orders.
This article explores how to buy Bitcoin (BTC) and Ethereum (ETH) in the UK, while providing information on legal considerations, secure storage options, cryptocurrency exchanges, and brokers to make navigating the market easy.
Is it legal to buy Bitcoin and Ethereum in the UK?
While the legal status of cryptocurrencies varies from country to country, buying Bitcoin (BTC) and Ethereum (ETH) is fully legal in the UK, with a clear regulatory framework in place. Cryptocurrencies are classified as taxable assets by Her Majesty’s Revenue and Customs (HMRC) and are subject to tax.
Purchasing Bitcoin and Ethereum in the UK triggers tax reporting and payment obligations associated with cryptocurrency transactions. Therefore, it is crucial for individuals planning to purchase BTC and ETH in the UK to maintain accurate records. This ensures that both crypto gains and crypto losses comply with tax regulations.
It’s worth noting that in the UK, cryptocurrencies are not considered legal tender like the pound sterling. This approach to cryptocurrency regulation helps foster innovation and awareness of associated risks, creating a transparent and legal environment for buying, selling and holding Bitcoin and Ethereum.
In October 2023, the Financial Conduct Authority (FCA) expanded its regulatory scope to include crypto asset promotions in the UK, emphasizing compliance with accurate information and risk warnings. Additionally, starting in September 2023, the Travel Rules require UK-based crypto-asset businesses to collect, verify and share transfer information, impacting the pseudonymous nature of cryptocurrencies.
Despite industry participation, some market participants have withdrawn from the UK, highlighting the importance of adhering to rules and regulations when using exchanges to purchase cryptocurrencies.
Safe Wallet Practices for Protecting Bitcoin and Ethereum Assets
Before delving further into investing in Bitcoin and Ethereum, it is crucial to have a secure crypto wallet that comes in many forms. While it is convenient to leave a small amount of coins on a trading account, transitioning to a more secure storage solution may be an option for investors who want to store large amounts of coins.
Additionally, it is important to remember that retaining funds on an exchange means a lack of control over the keys and therefore the tokens, which emphasizes the importance of protecting private keys for full control and ownership of digital assets.
Bitcoin wallets (including hardware, software and paper options) are used to securely manage and store Bitcoin assets, while Ethereum wallets act as secure repositories for ETH, providing control over assets and facilitating transactions.
Cryptocurrency users rely on Bitcoin and Ethereum wallets to protect and control their digital assets, ensuring the secure management of private keys critical to accessing, withdrawing and managing their assets.
related: A Beginner’s Guide to Filing Cryptocurrency Taxes in the US, UK, and Germany
To reduce risk, investors can increase security by transferring cryptocurrencies from the exchange’s default wallet to their own cold wallet, which is not online and therefore less vulnerable to hackers.
It’s worth noting that these wallets themselves do not store investors’ cryptocurrencies; Instead, they protect the private keys needed to access wallet addresses and authorize transactions. Losing these digital keys means that Bitcoin and Ethereum cannot be used.
Buy Bitcoin and Ethereum on Cryptocurrency Exchanges in the UK
Investors need to choose a broker or cryptocurrency exchange before buying cryptocurrencies. Although both can buy cryptocurrencies in the UK, it’s important to note some significant differences between them. Due to the increasing likelihood of hacking in the cryptocurrency space, choosing the best cryptocurrency exchange or broker can be a challenging process, with security being a top priority.
Choose a cryptocurrency exchange
Cryptoassets and the operation of cryptocurrency exchanges are not formally regulated in the UK, but the Financial Conduct Authority (FCA) requires registration of cryptocurrency exchanges within the country.Notably, some cryptocurrency exchanges such as Gemini, Bitpanda, Kraken, and Crypto.com have successfully Registered Cooperate with FCA.
Given the extreme volatility of cryptocurrency investments and the lack of government-backed protection, it is crucial to exercise caution and acknowledge the speculative nature of cryptocurrencies, even when dealing with FCA authorized and regulated providers. For enhanced security, investors can also spread their digital currency holdings across multiple exchanges to reduce the risk of a single exchange failing.
When choosing a cryptocurrency exchange, check the availability of BTC and ETH, but also make sure there is a large daily trading volume to ensure sufficient liquidity for smooth trading of crypto and fiat currencies. Additionally, be aware of fees that can impact returns, especially for high-frequency traders, and make sure the exchange offers the types of trades you need, such as limit orders and margin.
In response to the FCA’s updated regulatory guidance and the expanded parameters of the financial promotions regime, CEX.IO and Binance announced in 2023 that they had suspended admissions of new UK consumers. Therefore, verifying the availability of an exchange in the UK and complying with regulatory changes is critical to making informed decisions.
Choose a Cryptocurrency Broker
Cryptocurrency brokers, such as Interactive Brokers and eToro, simplify the cryptocurrency buying process by interacting with investors’ exchanges through user-friendly interfaces. While some cryptocurrency brokers charge higher fees, others offer their services for free but make money by selling trader data or executing user trades at sub-optimal market prices.
While brokers offer convenience, they may restrict the transfer of crypto assets from their trading platform. This limitation may be a problem for investors seeking enhanced security through crypto wallets, including hardware wallets that are disconnected from the Internet. However, brokers can restrict investors from transferring their cryptocurrency holdings to external wallets.
Decide on payment method
After choosing a cryptocurrency broker or exchange, investors can register to open an account and fund it through options such as linking a bank account or using a debit or credit card, although the latter may incur high fees.
After creating an account and selecting a payment method, authentication is required. For example, submitting identity documents and proof of address are common requirements in the UK. Investors may also encounter cryptocurrency risk awareness tests. Depending on the broker or exchange, you may have to wait a few days before using deposited funds to purchase cryptocurrency.
place an order
After funding their account, investors can place an order to buy Bitcoin or Ethereum by entering the required GBP amount. The process varies between exchanges; some have a simple “Buy” button for BTC and ETH, prompting the user to enter the required amount.
Most exchanges allow the purchase of fractional cryptocurrency stocks, making it possible to own a portion of high-priced coins that typically require a large investment, such as Bitcoin or Ethereum.
Store Bitcoin and Ethereum
As mentioned earlier, cryptocurrency exchanges face additional risks of theft or hacking and are not protected by the UK Financial Services Compensation Scheme. If a cryptocurrency owner loses or forgets their private key or recovery phrase, they can lose their entire investment.
When you buy cryptocurrency on a cryptocurrency exchange, it is usually kept in a wallet connected to the exchange. If desired, investors can store or withdraw Bitcoin and Ethereum to selected external wallets for added security. However, investors who purchase cryptocurrencies through a broker may not have much control over where they are kept.
If an investor is interested in moving their digital currency to a more secure location or doesn’t like the provider the exchange works with, they may move it from the exchange to a standalone hot or cold wallet. Depending on the exchange and transfer total, investors may be required to pay a small fee to complete this operation.
Cryptocurrency ATM
Cryptocurrency ATMs have appeared in cities around the world; however, in February 2023, the FCA imposed a ban on cryptocurrency ATMs and urged operators to shut down their machines or face enforcement action.
The FCA warns that using these machines is risky because they operate illegally and offer no protection if something goes wrong, and communication with operators is often challenging. The FCA aims to continue to alert the public and take enforcement action against unregistered crypto ATM operators.
Cryptocurrency Exchange Traded Funds (ETFs): Alternatives to Directly Holding Bitcoin and Ethereum
Exchange-traded funds (ETFs) provide diversification across multiple holdings, including cryptocurrencies such as Bitcoin and Ethereum, within a single investment. An investment trust pools investors’ money by selling a set number of shares, which can come with some initial trust-related challenges when starting up. This structure provides instant diversification and reduced risk compared to choosing individual investments.
Investors can now deposit and withdraw multiple cryptocurrencies simultaneously through different companies. ETF providers such as Purpose Investments and VanEck offer investors the opportunity to participate in the cryptocurrency market.
Other ways to buy Bitcoin and Ethereum in the UK
Several UK banking and financial apps, including PayPal, Revolut, Skrill and MoonPay, already offer customers the ability to buy Bitcoin and Ethereum directly on their platforms. To buy shares of publicly traded companies, they need an online account.
However, it is worth noting that Chase, the UK bank owned by J.P. Morgan, took a different stance in October 2023, banning its UK customers from cryptocurrency trading due to a significant increase in fraud and scams, including fake investments and deceptive celebrity endorsements. .
Additionally, payment processors such as BitPay can be used to purchase BTC and ETH. Once connected, users can initiate transactions through the payment processor to convert fiat currency into Bitcoin or Ethereum.
Additionally, in the UK, traders can utilize peer-to-peer (P2P) crypto platforms such as Cash App and Paxful to trade digital assets, although the government emphasizes the risks associated with these assets. P2P platforms support direct cryptocurrency transactions between individuals and are a common way to obtain digital currencies in the UK. However, it is important to realize that UK investors have limited legal protection in the event of a platform insolvency.
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