The best way to buy Bitcoin – and is now a good time to dive in?

Don’t be rushed into investing in cryptocurrencies by the fear of missing out, writes Holly Thomas

T‘Investors need to keep the Fomo in check, especially when it comes to something as febrile as crypto’

he 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) a 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 about 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 it. 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?

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: “Investors need to keep the Fomo [fear of missing out] in check, especially when it comes to something as febrile as crypto. This might not be the top of the bull market, 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 fainthearted – and some investors steer clear of it. Prices can be notoriously volatile. When Elon Musk, chief executive of Tesla, withdrew support for Bitcoin in 2021, prices dived. He’d earlier said he would accept the cryptocurrency as payment for Tesla cars.

His change of heart was reportedly down to environmental concerns, one of many factors that puts people off. “Mining” Bitcoin – the process required to verify transactions – consumes enormous amounts of electricity.

When it comes to investing in Bitcoin, timing is everything. The Bank of International Settlements estimates that about three quarters of Bitcoin buyers from 2015 to 2022 likely lost money, despite a huge rise in the price of the cryptocurrency – because they entered the market at the wrong time.

Khalaf suggested there are still several challenges that could hamper Bitcoin’s long- term growth. “These include regulatory uncertainties and environmental concerns. 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. This is 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 Many investors are choosing to add cryptocurrency to their portfolios. If you’re comfortable with the risks, 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 Netflix-style 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 offers only apply if you live in the US. Your Bitcoin – or other cryptocurrency of choice – can be stored in a digital wallet on the platform. You can also transfer it on to your hard drive.

Be careful when you research how to buy your Bitcoin. There are plenty of fraudsters setting up as dealers.

The FCA keeps a list of unregistered cryptoasset businesses, so it’s also worth checking to see if a company appears here before you hand over any money.

OTHER WAYS TO INVEST 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? Bitcoin doesn’t have any earnings and doesn’t pay an income, so price action is largely driven by sentiment.

The watchdog Financial Conduct Authority ( FCA) has expressed concerns about cryptocurrencies on many occasions.

Crucially, they are not regulated by the FCA, so buyers have no protection under the Financial Services Compensation Scheme.

It also means they cannot complain to the Financial Ombudsman Service to settle any claims of unfair practice.

DON’T FORGET

THE TAX IMPLICATIONS

Any gains need to be reported for tax purposes. Investors are expected to declare taxable gains from crypto assets via a self-assessment tax return.