The price of Bitcoin recently hit an all-time high, surpassing the previous record reached in November 2021.
The world’s largest digital token rose past $69,000 (£54,353) per coin for the first time in its history, having risen more than 50pc since the start of the year.
The same day the price swung back down again by around 15pc. Yet overall it has recovered more than 300pc since hitting a post-pandemic low of about $16,500 in December 2022.
For some, such a rally has renewed an interest in cryptocurrency investment.
Here, Telegraph Money explains how to get involved in Bitcoin investments, and how to gauge when it’s a good time to do it.
Should you invest in Bitcoin?
When there is heightened momentum, investors might feel the need to move fast and get in on the action – but that’s not necessarily a good strategy, as you’ll be buying high.
Laith Khalaf, head of investment analysis at AJ Bell, warned: “At times like these investors need to keep the ‘FOMO’ in check, especially when it comes to something as febrile as crypto.
“This might not be the top of the current bull market in Bitcoin, but anyone buying in should be willing to accept the potential downside, especially if the crypto market eventually proves to be the emperor’s new clothes.”
Cryptocurrency is not for the faint-hearted – and many investors are still choosing to steer clear of it. Prices can be notoriously volatile, as the Bitcoin cycle below shows.
For example, when Elon Musk, co-founder and chief executive of electric vehicle company Tesla, withdrew support for Bitcoin in 2021, prices dived. He’d previously said he would accept the cryptocurrency as payment for Tesla cars.
His change of heart was reportedly down to environmental concerns, which is one of many factors that puts people off.
The process of “mining” Bitcoin – the process required to verify transactions – consumes enormous amounts of electricity. For those concerned with the environment, buying cryptocurrency therefore goes directly against a growing trend of investing with sustainability in mind.
When it comes to investing in Bitcoin, timing is everything. The Bank of International Settlements estimates that around three-quarters of Bitcoin buyers between 2015 and 2022 were likely to have lost money, despite a huge rise in the price of the cryptocurrency – almost certainly because they entered the market at precisely the wrong time.
And while prices have risen, Mr Khalaf suggested there are several challenges that could hamper Bitcoin’s long-term growth.
“These include regulatory uncertainties and environmental concerns related to Bitcoin mining. Moreover, the emergence of Central Bank Digital Currencies presents a double-edged sword: while they appear to validate the concept of digital currencies, they also pose direct competition to decentralised cryptocurrencies like Bitcoin.”
That being said, Bitcoin could get a further boost this year from another so-called “halving” event – when the reward for Bitcoin mining is cut in half.
After previous halvings, which occur on average every four years or so, Bitcoin’s growth rate accelerated.
How to buy cryptocurrencies
Like it or not, many investors are choosing to add cryptocurrency to their portfolios.
If you’re comfortable with the risks at hand, you can purchase Bitcoin and other cryptocurrencies either from specialist online exchanges, or directly from other people via marketplaces.
Among the UK cryptocurrency exchanges are Coinbase, Robinhood, Gemini and eToro. These exchanges make it easy to buy and sell Bitcoin and other cryptocurrencies from your smartphone, tablet or computer.
Platforms either charge a percentage of a trade or a fixed fee, though some offer free trades. There might also be a subscription option where you pay a regular sum and trades are free.
For example, at eToro you’ll pay 1pc for buying and selling Bitcoin, but at Robinhood there’s no fee. There might also be an account minimum so make sure you check the terms. If there is a minimum, it tends to be low, at around $10.
Some exchanges offer free crypto when you open an account, but don’t let that sway you. Make sure you are clear about the terms and charges rather than just eyeing the freebies. Plus, some of the offers only apply if you’re based in America anyway.
You’ll need to add funds to your account before you’re able to start trading. You can usually pay for the currency by credit or debit card, or bank transfer.
Your Bitcoin – or other cryptocurrency of choice – can be stored in a digital wallet on the platform. You can also transfer it onto your hard drive.
Be careful when you research how to buy your Bitcoin. There are plenty of fraudsters setting up as dealers ready to take your money. Don’t invest in a company you’ve spotted advertising on, say, some forms of social media – which is rife with crypto scam adverts.
The financial watchdog, the Financial Conduct Authority (FCA), keeps a list of unregistered crypto asset businesses, so it’s also worth checking to see if a company appears here before you hand over any money.
Other ways to invest in crypto
Investors can find other ways of getting exposure to Bitcoin – such as by investing in companies with crypto holdings.
AJ Bell investors have been buying up shares in MicroStrategy lately, an American firm which describes itself as a business intelligence company. MicroStrategy is thought to be the largest publicly listed holder of Bitcoin in the world, holding around 193,000 Bitcoins, according to AJ Bell.
The ETFs launched in America are not available in Britain, though some suppose they might make it across the pond one day.
Rob Burgeman, senior investment manager at RBC Brewin Dolphin, said: “It does, however, only seem like a matter of time before similar products become available here.”
Is it safe to invest in cryptocurrency?
It’s worth remembering that Bitcoin doesn’t have any earnings and doesn’t pay an income, so price action is largely driven by sentiment.
The FCA has expressed concerns about cryptocurrencies on many occasions – mainly surrounding price volatility and the inherent difficulties of valuing cryptocurrency reliably, both of which place consumers at a high risk of losses.
Crucially, cryptocurrencies are not regulated by the FCA, so buyers have no protection under the Financial Services Compensation Scheme which covers losses up to £85,000 on fully regulated accounts and investment products including pensions.
It also means they cannot complain to the Financial Ombudsman Service to settle any claims of unfair practice.
However, cryptocurrency firms are required to register with the FCA in order to comply with things like anti-money laundering regulations, and perhaps also carry out other regulated activities.
Unlike conventional banking, it’s impossible for official authorities to prevent money laundering, drug trading or cybercrime when it comes to cryptocurrencies.
Don’t forget the tax implications
You might think that with cryptocurrency not being “money” in the way you’d usually think of it, you don’t have to pay tax on investment growth – but that’s not the case.
Mr Burgeman said: “For those lucky enough to make money onBitcoinor other cryptocurrencies, be aware that it is an area of renewed focus for HMRC. It has been sending out ‘gentle reminders’ that any gains need to be reported for tax purposes.”
There could also be a tax crackdown on crypto in the future, as the Budget saw a consultation launched looking into a new system, with an automatic exchange of tax information specifically for crypto asset transactions.
“This could result in HMRC obtaining the data it needs more easily to tackle those failing to report and pay the right amount of tax on their crypto activities,” said Miruna Constantin, tax manager at RSM UK, a tax firm.
“Gone are the days where individuals could play around with crypto, trigger tax liabilities and then just bury their heads in the sand claiming they had no idea they had to pay tax on it.
“It is envisaged that the rules will come into force in 2026 at the earliest and HMRC believe they will bring in revenue of up to £95m per year.”
In the meantime, investors are expected to declare taxable gains from crypto assets via a self-assessment tax return.
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