To successfully buy Bitcoin, it is essential to identify secure options. In the U.K., purchasing cryptocurrencies is legal, yet the government has warned of the risks associated with it.
Investors should take several steps to navigate the crypto landscape, including selecting the right crypto exchange or broker, setting up a secure wallet and making well-informed payments and orders.
This article outlines how to acquire Bitcoin (BTC) and Ether (ETH) in the U.K. while providing information on legal requirements, secure storage solutions, cryptocurrency exchanges and brokers to facilitate market navigation.
Is it legal to buy Bitcoin and Ether in the U.K.?
The legality of cryptocurrencies varies from one country to another; however, purchasing Bitcoin (BTC) and Ether (ETH) in the U.K. is completely legal, with a well-defined regulatory framework in place. HMRC (His Majesty’s Revenue and Customs) classifies cryptocurrencies as taxable assets, thus implying that any crypto transaction is subject to taxation.
When obtaining Bitcoin and Ether in the U.K., it is important to keep accurate records in order to comply with the tax regulations for both crypto gains and losses. It is also worth noting that cryptocurrencies are not recognized as legal tender in the U.K. like the British pound. This regulatory approach to digital assets helps to foster innovation and promote awareness of associated risks, creating a transparent, legal environment for buying, selling and holding Bitcoin and Ether.
In October 2023, the FCA (Financial Conduct Authority) extended its regulatory oversight to include crypto asset promotions in the U.K., emphasizing compliance with accurate information and risk warnings. Additionally, starting in September 2023, the Travel Rule mandates that U.K.-based crypto asset businesses must 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., emphasizing the importance of following the rules and regulations when using exchanges to buy cryptocurrencies.
Secure wallet practices to safeguard Bitcoin and Ether holdings
Before investing in Bitcoin and Ether, it is essential to have a secure crypto wallet. Smaller amounts of tokens can be stored on an exchange account, but for larger amounts, a more secure storage solution is recommended. It is important to remember that keeping funds on an exchange means not having control over the keys, meaning that the coins are not owned by the investor.
Bitcoin wallets, such as hardware, software and paper wallets, are used to securely store Bitcoin, while Ethereum wallets act as secure repositories for ETH, allowing for control of assets and facilitating transactions.
Cryptocurrency users rely on Bitcoin and Ether wallets to protect and control their digital assets, with the private keys necessary for accessing the wallet’s address and authorizing transactions being of utmost importance.
In order to reduce risk, an investor can increase security by transferring their cryptocurrency from an exchange’s default wallet to their own cold wallet, which is not online and thus less vulnerable to hacking.
It is important to note that these wallets do not store the investor’s cryptocurrencies directly; instead, they store the private keys necessary for accessing the wallet’s address and authorizing transactions. Losing these digital keys means the loss of access to Bitcoin and Ether holdings.
Buying Bitcoin and Ether in the U.K. through crypto exchanges
Investors must select a broker or cryptocurrency exchange prior to purchasing cryptocurrencies. Although both provide cryptocurrency purchases in the U.K., it’s important to note some key differences between them. With the increasing risk of hacks in the cryptocurrency space, choosing the best cryptocurrency exchange or broker can be a difficult process, with security being the main priority.
Choose a crypto exchange
Crypto assets and crypto exchanges in the U.K. are not formally regulated, but the Financial Conduct Authority (FCA) requires registration for crypto exchanges within the country. Examples of crypto exchanges registered with the FCA are Gemini, Bitpanda, Kraken and Crypto.com.
Given the high volatility and lack of government-backed protection for cryptocurrency investments, it is important to be aware of the speculative nature of cryptocurrencies, even when dealing with FCA-authorized and regulated providers. To increase security, investors can also diversify their digital currency holdings among multiple exchanges to reduce the risk of a single exchange failure.
When selecting a crypto exchange, check if BTC and ETH are available, but also ensure that there is sufficient daily trading volume to guarantee sufficient liquidity for smooth transactions in both cryptocurrencies and fiat currency. Additionally, pay attention to the fees that can affect returns, particularly for high-frequency traders, and make sure the exchange offers the 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 making an informed decision.
Choose a cryptocurrency broker
Cryptocurrency brokers, such as interactive brokers and eToro, provide an easy way to purchase crypto with user-friendly interfaces that interact with exchanges for investors. However, some cryptocurrency brokers charge higher fees, while others offer their services for free but benefit from selling traders’ data or executing user trades at suboptimal market prices.
Though brokers provide convenience, they may limit the transfer of cryptocurrency holdings from their trading platforms. This can be a problem for investors who are seeking enhanced security through crypto wallets, such as hardware wallets disconnected from the internet. In this case, brokers can prevent investors from moving their crypto holdings to external wallets.
Decide on a payment option
Once a crypto broker or exchange is chosen, investors must sign up to open an account and fund it. This can be done by linking a bank account, using debit or credit cards (which may have high fees), or by other methods.
Identity verification is mandatory when creating an account and selecting a payment method. For instance, in the UK, an identity document and proof of address must be submitted. Additionally, investors may have to take a crypto risk awareness quiz. Depending on the broker or exchange, it may take a few days for the deposited funds to be available for buying cryptocurrency.
Place an order
After funding their account, investors can purchase Bitcoin or Ether by entering the desired amount in pounds. The process may vary between exchanges; some have a simple “Buy” button for BTC and ETH, prompting users to enter the desired amount.
Most exchanges allow the purchase of fractional cryptocurrency shares, making it possible to own parts of higher-priced tokens like Bitcoin or Ethereum that would typically require a large investment.
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Store Bitcoin and Ether
Cryptocurrency exchanges are not protected by the Financial Services Compensation Scheme of the United Kingdom and may be subject to theft or hacking. If investors lose or forget their private keys or recovery phrases, they may lose their entire investment.
When buying cryptocurrency on a crypto exchange, it is usually kept in a wallet linked to the exchange. If desired, investors can move Bitcoin and Ether to an external wallet for additional security. However, investors who purchase cryptocurrency through a broker may not have much control over its storage.
If an investor wants to move their digital currency to a safer place or does not like the provider the exchange works with, they can transfer it off the exchange to an independent hot or cold wallet. Depending on the exchange and the amount of the transfer, investors may need to pay a small fee to do this.
Cryptocurrency ATMs
Crypto ATMs have been popping up in cities around the world; however, in February 2023, the FCA imposed a ban on cryptocurrency ATMs and urged operators to close their machines or risk facing enforcement actions.
The FCA warns that using these machines is risky, as they do not operate in accordance with the law and provide no protection in case of issues, and communication with operators can be difficult. The FCA is determined to continue to caution the public and take enforcement measures against unregistered crypto ATM operators.
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Crypto exchange-traded funds (ETFs): An alternative to directly holding Bitcoin and Ether
ETFs provide a way for investors to gain diversified exposure to multiple holdings, including cryptocurrencies such as Bitcoin and Ether, through a single investment. Investment trusts are created by the sale of a set number of shares, which may bring about some initial trust-related issues upon launch. This structure provides immediate diversification and reduces risk compared to picking individual investments.
Investors are now able to access multiple cryptocurrencies concurrently through various firms. ETF providers, such as Purpose Investments and VanEck, offer investors the possibility to engage 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 companies that are publicly listed, they will require an online account.
However, it’s 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 a notable increase in fraud and scams, including fake investments and deceptive celebrity endorsements related to AI.
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, such as 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 prevalent means of acquiring digital currencies in the United Kingdom. However, it’s important to be aware that U.K. investors have limited legal protections in the event of platform insolvency.
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