In order to effectively navigate the process of buying Bitcoin, it is crucial to consider secure options. In the United Kingdom, purchasing cryptocurrencies is legal, but it can be challenging due to the government’s emphasis on understanding the associated risks.
To successfully traverse the crypto landscape, investors need to follow certain steps, which include selecting the right crypto exchange or broker, setting up a secure wallet, and making informed decisions about payments and orders.
This article provides a comprehensive guide on how to buy Bitcoin (BTC) and Ether (ETH) in the U.K., while also offering information on legal considerations, secure storage options, cryptocurrency exchanges, and brokers to facilitate seamless market navigation.
Is it legal to buy Bitcoin and Ether in the U.K.?
Buying Bitcoin (BTC) and Ether (ETH) is completely legal in the U.K., as there is a well-defined regulatory framework in place. These cryptocurrencies are considered taxable assets by the HMRC (His Majesty’s Revenue and Customs) and are subject to taxation.
Acquiring Bitcoin and Ether in the U.K. entails tax reporting and payment obligations related to cryptocurrency transactions. Therefore, it is crucial for individuals planning to purchase BTC and ETH in the United Kingdom to maintain accurate records to comply with tax regulations for both gains and losses.
It is important to note that cryptocurrencies are not recognized as legal tender, like the British pound, in the U.K. This regulatory approach fosters innovation and promotes awareness of the risks associated with cryptocurrencies, creating a transparent and legal environment for buying, selling, and holding Bitcoin and Ether.
In October 2023, the Financial Conduct Authority (FCA) expanded its regulatory oversight to include crypto asset promotions in the U.K., emphasizing the importance of compliance with accurate information and risk warnings. Additionally, starting in September 2023, the Travel Rule mandates that U.K.-based crypto asset businesses collect, verify, and share information on transfers, which affects the pseudonymous nature of cryptocurrencies.
Despite industry engagement, some market players have exited the U.K., highlighting the significance of adhering to rules and regulations when using exchanges to buy cryptocurrencies.
Secure wallet practices to safeguard Bitcoin and Ether holdings
Before diving into Bitcoin and Ether investments, it is essential to have a secure crypto wallet, which comes in various forms. While it may be convenient to leave holdings on an exchange account for small quantities, transitioning to a more secure storage solution becomes an option for investors wanting to store larger amounts of tokens.
It is crucial to remember that leaving funds on an exchange means relinquishing control over the keys and, consequently, the coins themselves. This emphasizes the importance of securing 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 holdings, while Ethereum wallets act as secure repositories for ETH, providing control over assets and facilitating transactions.
Cryptocurrency users rely on Bitcoin and Ether wallets to safeguard and control their digital assets, ensuring the secure management of private keys necessary for accessing and managing their holdings.
Related: A comprehensive guide to filing cryptocurrency taxes in the U.S., U.K., and Germany
To minimize risk, investors can enhance security by transferring their cryptocurrency from an exchange’s default wallet to their own cold wallet, which is not connected to the internet and therefore less susceptible to hacking.
It is worth noting that these wallets do not store the actual cryptocurrencies but rather safeguard the private keys necessary for accessing the wallet’s address and authorizing transactions. Losing these digital keys means losing access to Bitcoin and Ether holdings.
Buying Bitcoin and Ether in the U.K. through crypto exchanges
Before purchasing cryptocurrencies, investors need to choose a broker or cryptocurrency exchange. While both options allow for cryptocurrency purchases in the U.K., there are significant distinctions between them. Due to the increasing risk of hacks in the cryptocurrency space, selecting the best cryptocurrency exchange or broker can be a challenging process, with security being the top priority.
Choose a crypto exchange
In the U.K., crypto assets and crypto exchanges operate without formal regulation, but the FCA mandates registration for crypto exchanges within the country. Some crypto exchanges, such as Gemini, Bitpanda, Kraken, and Crypto.com, have successfully registered with the FCA.
Given the extreme volatility and lack of government-backed protection for cryptocurrency investments, exercising caution and recognizing the speculative nature of cryptocurrencies is vital, even when dealing with FCA-authorized and regulated providers. To enhance security, investors can also diversify their digital currency holdings across multiple exchanges to mitigate the risk of a single exchange failure.
When choosing a crypto exchange, it is important to check for the availability of BTC and ETH, as well as substantial daily trading volume to ensure sufficient liquidity for smooth transactions in both cryptocurrencies and fiat currency. Additionally, watch out for fees that can impact returns, especially for high-frequency traders, and ensure the exchange offers desired trading types, such as limit orders and margins.
In response to updated regulatory guidelines from the FCA and the expanded parameters of the Regime of Financial Promotions, CEX.IO and Binance announced in 2023 that they had suspended onboarding new U.K.-based consumers. Therefore, verifying an exchange’s availability in the U.K. and compliance with regulatory changes is essential for informed decision-making.
Choose a cryptocurrency broker
Cryptocurrency brokers, such as Interactive Brokers and eToro, simplify the process of buying crypto with user-friendly interfaces that interact with exchanges on behalf of investors. While some cryptocurrency brokers charge higher fees, others offer their services for free but profit by selling traders’ data or executing user trades at suboptimal market prices.
While brokers offer convenience, they may restrict the transfer of cryptocurrency holdings from their trading platforms. This restriction can be a concern for investors seeking enhanced security through crypto wallets, including hardware wallets disconnected from the internet. However, brokers can limit investors from moving their crypto holdings to external wallets.
Decide on a payment option
After selecting a cryptocurrency broker or exchange, investors can sign up to open an account and fund it through options such as linking a bank account or using debit or credit cards, although the latter may incur high fees.
Upon creating an account and selecting a payment method, identity verification is mandatory. For example, the submission of an identity document and proof of address is a common requirement in the United Kingdom. Investors may also encounter a crypto risk awareness quiz. Depending on the broker or exchange, there might be a wait of a few days before the deposited funds can be used to buy cryptocurrency.
Place an order
Once their account is funded, investors can proceed to place an order to purchase Bitcoin or Ether by entering the desired amount in pounds. The process may vary depending on the exchange; some have a straightforward “Buy” button for BTC and ETH, which prompts users to enter the desired amount.
Most exchanges allow the purchase of fractional cryptocurrency shares, making it possible to own portions of higher-priced tokens like Bitcoin or Ethereum that would typically require a significant investment.
Store Bitcoin and Ether
As mentioned earlier, cryptocurrency exchanges carry additional risks of theft or hacking and are not protected by the Financial Services Compensation Scheme of the United Kingdom. If cryptocurrency owners misplace or forget their private keys or recovery phrases, they could lose their entire investment.
When purchasing cryptocurrency on a crypto exchange, it is typically stored in a wallet connected to the exchange. If desired, investors can store or withdraw Bitcoin and Ether to an external wallet of their choice for added security. However, investors buying cryptocurrency through a broker may have limited control over where it is stored.
If an investor wants to transfer their digital currency to a more secure location or does not trust the exchange’s provider, they can move it off the exchange and into an independent hot or cold wallet. Depending on the exchange and the total amount of the transfer, investors may be required to pay a small fee to accomplish this.
Cryptocurrency ATMs
Crypto ATMs have been popping up in cities worldwide, but in February 2023, the FCA banned cryptocurrency ATMs and urged operators to shut down their machines or face enforcement actions.
The FCA warns that using these machines is risky as they operate unlawfully and provide no protection in case of issues. Communication with operators is often challenging. The FCA aims to continue cautioning the public and taking enforcement measures against unregistered crypto ATM operators.
Crypto exchange-traded funds (ETFs): An alternative to directly holding Bitcoin and Ether
Exchange-traded funds (ETFs) offer diversified exposure to multiple holdings within a single investment, including cryptocurrencies like Bitcoin and Ether. Investment trusts pool investors’ funds through the sale of a set number of shares. However, they may face initial challenges related to trust upon launch. This structure provides instant diversification and reduces risk compared to selecting individual investments.
Investors can now access multiple cryptocurrencies simultaneously through various firms. ETF providers such as Purpose Investments and VanEck offer opportunities for investors to participate in the crypto market.
Other methods to buy Bitcoin and Ether in the U.K.
Several U.K. banking and financial apps, such as PayPal, Revolut, Skrill, and MoonPay, have introduced the ability for customers to purchase Bitcoin and Ether directly on their platforms. To purchase shares in publicly listed companies, investors will need an online account.
However, it is worth noting that JPMorgan’s U.K. bank, Chase, took a different stance in October 2023 by prohibiting cryptocurrency transactions for its British customers due to an increase in fraud and scams, including fake investments and deceptive celebrity endorsements.
Additionally, payment processors such as BitPay can be used to buy BTC and ETH. Once connected, users can initiate transactions through the payment processor, converting fiat currency into Bitcoin or Ether.
Moreover, in the U.K., traders can utilize peer-to-peer (P2P) crypto platforms like Cash App and Paxful to trade digital assets, although the government emphasizes the risks associated with these assets. P2P platforms enable direct cryptocurrency transactions between individuals and are a popular means of acquiring digital currencies in the United Kingdom. However, it is important to be aware that U.K. investors have limited legal protections in the event of platform insolvency.