Bitcoin has appreciated by more than 4,000% since May 2016 and has become part of the zeitgeist. The interest in the cryptocurrency is correspondingly high.
If you are considering investing in Bitcoin, you should know that there is no guarantee that you will see a return or break even. Between 2017 and 2018, the value of the cryptocurrency plummeted from nearly £16,000 to £2,400.
This volatility has prompted the UK’s Financial Conduct Authority (FCA) to repeatedly warn that cryptocurrency buyers should be ready to lose their entire investment.
If you are aware of the risks and still want to buy bitcoin, here’s how to do it by using a credit card.
Sign up with a crypto exchange
In order to buy bitcoin, you need to exchange a currency for it.
However you choose to pay for your bitcoin, you must use a crypto exchange. Popular exchanges are Coinbase and Binance.
Choose an exchange with a bitcoin wallet built into their platform and you won’t have to sign up for one elsewhere. If you want to store your cryptocurrency in a wallet outside of your chosen exchange, make sure it allows withdrawals and see what fees, if any, apply.
If you intend to buy bitcoin with your credit card, make sure the exchange accepts your brand (e.g. American Express, Visa, Mastercard).
Pay by credit card
Once you have signed up for an account with an exchange, you need to add funds.
Some exchanges charge a fee for certain payment methods. For example, Coinbase charges no fees when you deposit funds into your account via bank transfer, but charges 3.99% when you use a credit card.
Also note that your card issuer treats using a credit card to buy bitcoin as a cash advance, so you’re likely paying not only a fee to the exchange, but also a higher interest rate than you would on a regular credit card purchase.
Additionally, you will likely be charged interest from the time of purchase, regardless of whether you subsequently balance your balance.
Although uncommon, there are credit cards that charge 0% on cash advances. However, it is not advisable to take on debt to buy Bitcoin. When buying bitcoin with a credit card, you should try to cash out your balance as soon as possible to minimize the interest it will attract.
To order something
Navigate to Bitcoin within the platform you are using and enter the amount you wish to invest. If you don’t invest over £30,000, buy a share of one bitcoin. For example, if the value of Bitcoin is £30,000 and you invest £1,000, you would own 3.33% of a Bitcoin.
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Keep your bitcoins safe
You can store your bitcoin in your exchange’s built-in wallet or, if you prefer and the exchange allows it, in a third-party provided wallet. But if you’re comfortable storing your bitcoin in a “hot” wallet, meaning online, you can use a “cold” wallet instead, which is a storage device that’s not connected to the internet.
Keep in mind that withdrawing your bitcoins from the exchange may incur fees, and if you choose to use a cold wallet you will need to keep your access codes safe or risk being locked out of your own holdings.
How to sell your bitcoins
You can also sell your bitcoin through a crypto exchange, either immediately or when it reaches a certain price. After the sale, you can withdraw the money back into your bank account – although in some cases you’ll have to wait a few days before you can withdraw it.
If the profits you make from selling bitcoin are large enough, you are subject to Capital Gains Tax (CGT). Each has an annual CGT allowance of £12,300. If you make profits in excess of that amount in a given year, you are likely to be subject to tax.
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