Bitcoin has grown in value by more than 4,000% since May 2016 and become a part of the zeitgeist. As a result, interest in the cryptocurrency is high.
If you’re thinking about investing in Bitcoin, you should know there’s no guarantee you’ll see a return or break even. Between 2017 and 2018 the cryptocurrency’s value plummeted from almost £16,000 to £2,400.
Such volatility has led the UK’s financial watchdog, the Financial Conduct Authority (FCA), to repeatedly warn that cryptocurrency buyers should be prepared to lose their entire investments.
If you’re aware of the risks and still want to buy Bitcoin, however, here’s how you do it using a credit card.
Sign up with a crypto exchange
To buy Bitcoin, you’ll need to exchange some currency for it.
However you want to pay for your Bitcoin, you’ll need to use a crypto exchange. Popular exchanges include the likes of Coinbase and Binance.
Choose an exchange with a Bitcoin wallet built into its platform and you won’t have to sign up for one elsewhere. If you do want to hold your cryptocurrency in a wallet outside of your chosen exchange, make sure it allows withdrawals and check what, if any, fees apply.
If you’re intending to buy Bitcoin with your credit card, check if the exchange accepts the brand you have (for example, American Express, Visa, Mastercard).
Paying with a credit card
Once you’ve signed up for an account with an exchange, you’ll need to add funds to it.
Some exchanges charge a fee for certain payment methods. For example, Coinbase charges no fees when you add funds to your account via bank transfer, but charges 3.99% when you use a credit card.
Also, be aware that when you use a credit card to buy Bitcoin, your card issuer will treat it as a cash advance, so not only will you likely pay a fee to the exchange, you’ll also pay a higher rate of interest than you would on a regular credit card purchase.
What’s more, you’re likely to be charged interest from the point you make the purchase, regardless of whether you subsequently clear your balance.
Though uncommon, there are credit cards that charge 0% on cash advances. However, taking on debt to buy Bitcoin is not advisable. If you do buy Bitcoin with a credit card, you should try to pay off your balance as soon as possible to minimise the interest it will attract.
Place an order
Within the platform you’re using, navigate to Bitcoin and enter the amount you’d like to invest. Unless you’re investing north of £30,000, you’ll be buying a share of one Bitcoin. If Bitcoin’s value were at £30,000 and you invested £1,000, for example, you’d own 3.33% of a Bitcoin.
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Securely store your Bitcoin
You can store your Bitcoin in your exchange’s integrated wallet or, if you prefer and the exchange allows it, a wallet provided by a third party. But, if you feel comfortable holding your Bitcoin in a ‘hot’ wallet i.e. online, you can instead use a ‘cold’ wallet, which is a storage device not connected to the internet.
Bear in mind that there may be fees to pay for withdrawing your Bitcoin from the exchange, and if you go with a cold wallet you’ll need to keep safe your access codes or risk being locked out of your own holdings.
How to sell your Bitcoin
You can also sell your Bitcoin via a crypto exchange, either immediately or when it hits a certain price. Once sold, you can transfer the money back to your bank account – although in some cases you’ll have to wait a couple of days before you can withdraw it.
If the profits you make from selling Bitcoin are big enough, you’ll be liable for Capital Gains Tax (CGT). Everyone has an annual CGT allowance of £12,300. If you have gains beyond this amount in any given year, you are likely to be liable for tax.