Ev­ery­one’s talk­ing about... bit­coin

The Daily Telegraph - Your Money - - FRONT PAGE - Sam Brod­beck

Bro­kers of­fer­ing the cur­rency are rife, but is it re­ally an in­vest­ment, asks James Con­ning­ton

Bit­coin – a cur­rency run by a peer-to-peer on­line net­work, rather than any sin­gle or­gan­i­sa­tion – has pow­ered its way into the pub­lic con­scious­ness. Ad­verts for bro­kers ap­pear on Lon­don Un­der­ground; ma­jor in­vest­ment shops such as IG and Har­g­reaves Lans­down now of­fer ways to buy, and a del­uge of emails en­cour­ag­ing peo­ple to in­vest is flood­ing the na­tion’s in­boxes.

Some be­lieve it is a new or­der of fi­nance that will turn tra­di­tional bank­ing and eco­nomic con­trol up­side-down. Oth­ers in­vest sim­ply for fear of miss­ing huge re­turns. Many more use bit­coin and other “cryp­tocur­ren­cies” for crim­i­nal gain.

In a ma­jor step to­ward mak­ing bit­coin main­stream, on Tues­day Chicago-based CME, the world’s largest ex­change op­er­a­tor, an­nounced it was pre­par­ing to of­fer bit­coin “fu­tures contracts”. Th­ese en­able cur­rency own­ers to hedge the risk they take. The move may en­cour­age tra­di­tional money man­agers to take more of an in­ter­est, and it drove the price of bit­coin to a record high of more than $7,000.

The cur­rency is highly volatile, in part due to a suc­ces­sion of hos­tile an­nounce­ments by gov­ern­ments and reg­u­la­tors. China, a ma­jor cryp­tocur­rency mar­ket, has banned its ci­ti­zens from trad­ing in them.

Other na­tions have been more sup­port­ive. Ja­pan passed leg­is­la­tion recog­nis­ing bit­coin as a le­gal pay­ment method ear­lier this year. In Rus­sia, where the ini­tial re­ac­tion was mixed, or­ders have now been is­sued for a le­gal frame­work. In the UK, the City watch­dog re­cently warned in­vestors about the risks of“Ini­tial Coin Of­fer­ings” (ICOs), used to raise funds for new cryp­tocur­ren­cies.

Many se­nior fi­nan­cial fig­ures have been dis­mis­sive. Jamie Di­mon, JP Mor­gan’s chief ex­ec­u­tive, de­scribed the cryp­tocur­rency as “a fraud”. Larry Fink, founder of fund group Black­Rock, called it an “in­dex of money laun­der­ing”. But there are anec­do­tal re­ports that “fam­ily of­fices” – firms set up to man­age the as­sets of su­per-rich dy­nas­ties – are now buy­ing, along­side other pri­vate banks and wealth man­agers. Gold­man Sachs is re­port­edly ex­plor­ing how it can help clients trade in dig­i­tal cur­ren­cies.

The idea that “bit­coin is the new gold” is a stretch – al­though com­par­isons are in­creas­ingly made. Gold has been used as a store of wealth since an­cient times. It is also a phys­i­cal com­mod­ity. Bit­coin is young, non-phys­i­cal and hard to un­der­stand. But there are sim­i­lar­i­ties.

Both gold and bit­coin are used by those who have an in­her­ent dis­trust of the es­tab­lished fi­nan­cial sys­tem. Both are, tech­ni­cally, por­ta­ble and bor­der­less. Both at­tract near-hys­ter­i­cal ad­her­ents who at­tach an al­most re­li­gious sig­nif­i­cance to own­er­ship.

Nei­ther gold nor bit­coin’s prices move in line with stock mar­kets, and nei­ther pro­vides an in­come. In the very short term, gold and bit­coin have re­acted in sim­i­lar ways by jump­ing, for ex­am­ple, in re­sponse to news of a politi­cal or eco­nomic cri­sis.

Both still re­quire trust. With a cryp­tocur­rency, you don’t have to put your trust in any one in­di­vid­ual or com­pany, but you do have to trust the soft­ware works, and that it can sur­vive reg­u­la­tion or any­thing else thrown at it. You also need to trust your “wal­let” provider to keep your cur­rency se­cure. Wal­lets can and have been stolen.

With gold, un­less you buy and store it, you trust your ser­vice to hold the gold it says it does, and keep a se­cure own­er­ship record. You also trust that the sup­ply is as limited as it ap­pears.

But they are not like-for-like. Aside from the ide­o­log­i­cal buyer, bit­coin and other cryp­tocur­ren­cies are largely be­ing in­vested in in the hope that they will grow in value enor­mously. Gold is still largely bought due to fear.

HOW TO BUY BIT­COIN

Buy­ing bit­coin used to be com­pli­cated, with in­tim­i­dat­ing web­sites and big fees. Now, there are a num­ber of con­sumer­friendly op­tions for trad­ing a whole range of cryp­tocur­ren­cies – if you are ready for the risks in­volved.

The first step is to set up a bit­coin wal­let. (You could also down­load the en­tire bit­coin pro­gramme, but there is no real ad­van­tage for the av­er­age in­vestor.)

There are lots of wal­lets out there, but Blockchain. info is one of the big­gest and most pop­u­lar. It has been backed by mil­lions in fund­ing, and has an easy-to-use app and web­site.

Sign up on­line or down­load the app, then se­cure your ac­count. Note down your wal­let ID, which you will need, ver­ify your email, and set up two-step au­then­ti­ca­tion.

Then, you’re ready to buy. To add bit­coin to your wal­let, you need to find a bro­ker. In ef­fect, your wal­let is your bank ac­count, and the bro­ker helps you buys things to put in it.

You send a bro­ker your cash via card or trans­fer, and they send bit­coin to your ac­count – of­ten af­ter strict iden­tity checks. Some banks, in­clud­ing HSBC and Bar­clays, said card pay­ments to Bit­coin providers could be de­clined, so you may need to trans­fer in­stead. Fees, ser­vice and pay­ment meth­ods all vary. Bit­ty­bot is a web­site that lets you com­pare bro­kers, but it might be sim­pler to stick with some­thing more straight­for­ward to start. Coinify is a bro­ker ser­vice in­te­grated into Blockchain.info it­self, so you can do ev­ery­thing in one place. Avoid op­tions re­quir­ing in­ter­na­tional bank trans­fers.

A cru­cial piece of in­for­ma­tion is a bit­coin ad­dress – which iden­ti­fies your ac­count on the bit­coin net­work. You will find it in the “Re­quest” tab of Blockchain.info. Every bit­coin bro­ker will ask for it. Then, it’s sim­ply a case of buy­ing.

It can take sec­onds or hours for a trans­ac­tion to go through. To sell, use the same bro­ker you bought with. You could also spend your bit­coin, as a num­ber of com­pa­nies now ac­cept it as pay­ment.

Pen­sion savers have been handed a “stag­ger­ing” £262m in re­funds from the tax­man af­ter be­ing overcharged. Of­fi­cial fig­ures show £37m of re­funds from the pen­sions “su­per tax” were made in just three months be­tween July and Septem­ber.

Tele­graph Money first re­vealed in April this year that hun­dreds of thou­sands of savers were pay­ing too much tax when us­ing the “pen­sion free­doms”. The prob­lem is caused by HM Rev­enue & Cus­toms sys­tems that tax one-off with­drawals as if they were the first of 12 reg­u­lar pay­ments.

A £10,000 one-off with­drawal is there­fore taxed as if an­nual in­come will be £120,000. As a re­sult, peo­ple are be­ing over-taxed by thou­sands of pounds. The tax­man prom­ises to re­pay within 30 days of re­ceiv­ing one of three com­pli­cated forms.

Last month, ex­perts used an in­quiry into the pen­sion free­dom re­forms to call for the Govern­ment to in­ter­vene. The most re­cent fig­ures show the value of re­funds is at its high­est level since the re­forms were in­tro­duced in April 2015. In all, £262m of re­funds have been made.

Tom Selby, of AJ Bell, the fund shop, branded the fig­ure as “stag­ger­ing” and said it was “man­i­festly un­fair to lumber savers, who are us­ing the free­doms in the way the Govern­ment in­tended, with whop­ping great tax bills”.

Mr Selby added: “Many of those af­fected – par­tic­u­larly ba­sic-rate tax­pay­ers and peo­ple who don’t take ad­vice – will have lit­tle or no ex­pe­ri­ence deal­ing with tax mat­ters and might not even know the re­claim forms ex­ist.”

If you think you’ve been over­taxed on your pen­sion you need to fill out one of three HMRC forms: P55, P53Z or P50Z. The cor­rect form de­pends on your cir­cum­stances.

P55 should be used if the with­drawal has not en­tirely emp­tied your pen­sion pot; use P50Z if the with­drawal emp­tied your pot and you have stopped work­ing; and use P53Z if you have emp­tied your pot and are still work­ing. Have you been stung by the pen­sions “su­per tax”? We want to hear from you: sam.brod­beck@tele­graph.co.uk

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