Buying Bitcoin and other Crypto: what you Need To Know

Bitcoin and other cryptocurrencies have experienced a surge in popularity and value since Donald Trump was elected as US president.

Bitcoin broke the $100,000 barrier for the first time in late 2024, and it has risen by more than 132 per cent considering that the start of the year.

While recent development may have motivated more financiers into the crypto market, it is notoriously volatile and the road has not been so smooth in years past.

Cryptocurrencies saw a massive recession in the so-called ‘crypto winter’ at the end of 2021, leaving the price of many coins in the doldrums till midway through 2023.

The crypto market normally moves in cycles, and has actually suffered a variety of major dips because its beginning.

For Bitcoin and other major names such as Ethereum, the image is one of development in the long term – but other coins have actually proved less solid investments, in particular some of the ‘memecoins’ based upon internet trends.

Here is what you need to understand before buying crypto, including the various types of coin, how to purchase, hold and sell them, what risks to be familiar with and what taxes you need to pay.

Bitcoin boom: Following Trump’s election win, Bitcoin has gone from strength to strength – however it comes on the back of a rough few years

Bitcoin, altcoins and memecoins discussed
Bitcoin was the first cryptocurrency to be released back in 2009. Ever since, hundreds more digital currencies have followed.

Bitcoin, however, stays without a doubt the most popular offering, and there is an argument it is the lowest-risk.

Glen Goodman, author of The Crypto Trader, says: ‘Bitcoin is the daddy, the original crypto, and many individuals would argue it’s still the finest.

‘It’s proved its appeal over 15 years and even the traditional finance market is starting to see it as part of a normal diversified portfolio of possessions.’

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Beyond Bitcoin there are 2 other types of currency: altcoins and memecoins.

Altcoins are the follow-ups to Bitcoin, and include cryptos like Solana, Ethereum and XRP.

Tristram Lewis-Stempel, creator lead at Web3 gaming business Unagi/Persona NFT, which has its own cryptocurrency called Unagi, says: ‘Generally, these have actually been around for a long time, and have a great deal of value locked up in them.

‘People may have transferred a great deal of funds on the network and lent cash to others, individuals may be trading NFTs (non-fungible tokens) on them, or a variety of more complicated monetary instruments.

‘Alternatively, they might be newer but have immense support and offer great tech – an example of the latter would be Sei or Sui.’

Memecoins are another beast entirely, and a a lot more high-risk one at that.

Goodman explains these cryptocurrencies as an ‘in-joke’ between those in the tech and financing neighborhoods.

He says: ‘Memecoins are typically pretty from a useful point of view, but are in some cases still valued in the billions, simply since individuals keep buying them.’

Largely, the value of memecoins depends on their virality online – as a result they can skyrocket on the back of online prestige however can also plunge just as quickly.

Lewis-Stempel states: ‘For most financiers, I ‘d encourage just taking a look at the greatest ones and making these a minor focus within your portfolio.

‘The space moves exceptionally quick, and meme coins are about as near “the casino” as one can get!’

What platform should you utilize to purchase and offer crypto?
Crypto is typically purchased and sold on trading websites called ‘platforms’.

Just as you should approach buying crypto with care, investors need to similarly be cautious of picking the incorrect platform.

‘In regards to where to buy crypto, constantly stay with trusted investing platforms, centralised exchanges or marketplaces,’ Etoro market expert Simon Peters informed This is Money.

In the UK, there are a variety of offered alternatives. Etoro itself is one, along with Revolut, though neither of these have their crypto platforms specifically regulated by the FCA.

US-based platforms Coinbase and Kraken are partially covered by the FCA, and also face US regulation, making them two of the much safer bets for crypto investing.

There are a series of other platforms such as Crypto.com, Binance and Gemini.

Goodman suggests sticking to Coinbase or Kraken, due to the strict regulation they deal with in the US. He says: ‘It’s really crucial to choose fairly safe crypto investment platforms, a lesson rammed home by the failure of the FTX platform and the jailing of its eccentric creator Sam Bankman-Fried.’

Lewis-Stempel also advises Kraken due to its strong client support and ease of usage.

These platforms run in a comparable way to a stock exchange, processing each buy or sell transaction based on its own rates system and order book.

It is also possible to buy and offer crypto on ‘decentralised exchanges’ or DEXs, where crypto holders buy and sell to each other directly. However, this is riskier and might not be the very best option for newbies.

This is described in the crypto neighborhood as going ‘on chain’.

‘That’s a whole brand-new location – it opens access to brand-new tokens with greater prospective benefit,’ Lewis-Stempel states. ‘It is the real decentralised world, where the action is – but likewise where the best danger is.

‘For these, you need your own wallet, instead of simply purchasing on Coinbase and keeping your funds there, for instance.’

On-chain deals, made by means of DEXs, see crypto sellers matched with buyers using automatic ‘clever agreements’.

These DEXs reduce the probability of hacking, increase anonymity and have an enormous series of tokens readily available.

However, these offered tokens are also higher threat as they are not vetted like those on centralised exchanges, so circumstances of rip-offs are most likely.

What are the dangers of buying crypto?
With any investment, there are dangers to be conscious of. With crypto, these dangers are amplified tenfold.

‘You need to be mindful that you’re investing in a very volatile, high-risk property class,’ Lewis-Stempel says.

The additional removed you get from developed coins such as Bitcoin, the higher the threat. By the time you reach memecoins, there is a considerable chance that you will lose whatever you put in.

‘There’s also the really real threat of losing funds to hacks or fraud if you use your own wallet – I would encourage all major financiers to buy a hardware wallet to keep their funds on if they want to be safe,’ Lewis-Stempel adds.

Etoro’s Peters states it is best to allocate many of your crypto portfolio to greater market-cap currencies – those which deserve the most total.

He says: ‘These cryptoassets have displayed longevity and weathered the storm of numerous bearishness along with now having conventional finance products such as exchange-traded funds providing direct exposure to them.

This means concentrating on the bigger names like Bitcoin and Ethereum, instead of one of the countless little coins on the marketplace.

Peters states: ‘Potential financiers ought to do their due diligence before investing in a particular cryptoasset, such as understanding what the use case or desired utility is for the cryptoasset or project, studying the creators and developers, and its ranking in the crypto market capitalisation tables.’

Though hardly special to crypto investing, the space is also filled with scammers seeking to fleece uninformed financiers.

Goodman told This is Money: ‘If someone contacts you and provides to manage your crypto trading for you, they’re typically a scammer, who might seem possible and practical for weeks or months, but will eventually steal your money.’

When should you cash out of crypto?
If you had actually acquired $100 worth of Bitcoin in 2010, about 1,000 tokens, you would now have 10s of millions in the bank – that is if you had not cashed out currently.

The truth is that many people won’t have seen such gains.

Lewis-Stempel says: ‘You will not beat the marketplace, honestly. If I ‘d kept Bitcoin and Ethereum considering that I initially began in crypto in 2016, I ‘d be reacting to this interview from a private jet, rather than a house in Hackney.’

The volatility of the crypto markets might provide the impression that the very best way to generate income through crypto is to day trade, and take advantage of the fast variation of crypto costs.

In truth, the very best guidance is to purchase crypto and hold it, aiming for growth in the long term.

The shares that can make money from bitcoin mania – but beware the rollercoaster trip

‘Don’t day trade, buy practical tokens and keep them. Lewis-Stempel included. ‘For many, I ‘d advise looking at a basket that has major institutional weight behind it – for instance, take a look at the tokens in Grayscale’s Staking Fund, like Sei, Solana and Near.’

For those currently holding crypto it could be tempting to cash out on news of record-high prices.

Instead of offering all your holdings in one go, Peters recommends making partial sales in order to leave yourself open to the possibility of more increases.

He states: ‘Rather than closing at one cost level, an investor can partly close the position, say 30 per cent to 50 percent or more and keep some skin in the game in case the cost goes greater. ‘

Peters states the very same can be done when buying crypto, buying small quantities at routine periods to decrease the timing danger.

‘ Technical analysis such as using cost action charts, and other indicators to see where the price has actually peaked historically might also help an investor determine price levels at which to possibly leave,’ he states.

Obviously, when selling your crypto holdings, there could likewise be tax ramifications. Depending on the worth of your holdings, it might be smart to gradually sell your crypto in order to take advantage of your annual tax-free allowance.

Know how to work out your crypto tax liability
Despite the impression amongst numerous that crypto can be concealed from the prying eyes of the taxman, this just isn’t the case.

Just like regular investing, crypto goes through capital gains tax when your net gain from all of your invested properties surpasses your annual allowance.

This suggests you require to compute your gain for each transaction you make, typically the distinction between what you spent for the possessions, including deal expenses, and what you offered the them for.

You require to do this for every single crypto disposal throughout the tax year to calculate your net gain or loss.

Any losses you make can be offset versus your gains.

Gains in your crypto assets ought to be calculated in pounds sterling, instead of in US dollars, and consequently converted.

CGT is charged over your capital gains allowance of ₤ 3,000. If you collectively own properties with another individual, you can make double the revenue between you without being charged.

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