How To Get Started With Cryptocurrencies Like Bitcoin
Only invest what you can afford to lose ...
POSTED BY JONATHAN VOWLES ON 23/01/2018 @ 8:00AM
Bitcoin, Ethereum and Ripple are all different cryptocurrencies. Cryptocurrency isn't for everyone and as an investment, it isn't covered by much regulation, but it has created several millionaires in the past year ...
Cryptocurrencies are becoming more and more tempting as an investment platform!
copyright: dimarik16 / 123rf stock photo (licensee)
For example, you can get advice from anyone, not just from a regulated financial adviser and there is no consumer protection offered by the Financial Conduct Authority. Like a lot of new and not well-understood investments, its value fluctuates wildly and often without any discernible reason.
"Cryptocurrencies have created several millionaires in the last year!"
A big question to ask yourself is, should you buy some or not? Really, this is very much a personal question and, for some, cryptocurrencies are just the next scam. For others, it is an exciting way of investing.
With something that is so variable, classic investment advice is not to spend more than you can afford to lose! Also, to make sure you don't end up with a significant loss, it is a good idea to set yourself rules about buying and selling them.
For example, if the price goes down by 5% or 10% (or 50% as they are volatile!) then you might like to set a selling rule so that you don't take a huge loss. Equally, you might want to establish a buying rule. For some, a price decline is a selling point, and for others, it is a buying point! You need to decide for yourself.
"So what are the first steps?"
You can't trot down to your local bank branch or foreign currency shop and just buy them, you need to register with a crypto exchange broker. There are several commercial brokers and perhaps the best one of those is Litebit. Follow this link to find out more about Litebit. Of course, there are others, but Litebit is a European business and is therefore covered by what little EU regulation there is.
Also, you can pay online from your UK bank and either buy cryptocurrency direct, or buy Litebit credits that you can use to buy cryptocoins with. Litebit currently has around 50 different cryptocoins available and buying and selling them using the broker is simple.
Interestingly, there are around 100 cryptocurrencies ATM machines in the UK. You can just walk up and buy cryptocurrencies using your mobile phone and cash or card!
Once you have an account with the broker of your choice, you need to set up an online wallet to hold your cryptocoins. Each broker will, potentially, have a different way of doing this so follow the instructions when you purchase your coins.
There are several companies that just offer a wallet service. Importantly, check out the charges and fees! Your wallet will be linked to your phone or your computer, and it is essential to update your information as you change phones or upgrade your computer! It is also vital to set up two-factor authentication to make your wallet as secure as possible.
"So which cryptocurrency is the right one?"
Bitcoin is perhaps the best-known cryptocurrency, but it is by no means the only one. Litebit allows you to trade in around 50 popular coins and there will undoubtedly be new coins coming to their platform. There are about 1,400 different coins available worldwide. The question of which one to get is awkward to answer. You need to do some research or to take some advice.
Doing some Google research is a good idea, but actually, if you know nothing you are likely to make the wrong choice. Find someone who has experience or has been researching cryptocurrencies for a while, or go on a training course. If you get in touch, we can give you information about cryptocurrency training courses and forums.
"How do I spend cryptocoins?"
Spending your cryptocoins can be hard. There are very few businesses that accept them, although this number is steadily increasing. It is usually easier to use your online broker to cash them into a more easily spendable currency. However, if you are holding cryptocurrencies for spending rather than investing, it is worth exploring a crypto debit card.
For the business you are spending money with, it is just a debit card and they get flat (i.e. traditional) money into their merchant account. For you, the debit card is linked to your cryptocurrency wallet, and you spend your cryptocurrency. This is clearly an advantage for both sides.
Like everything else the taxman wants his pound of flesh from your cryptocurrency. However, your cryptocoins might be taxable under income tax rules or capital gains tax rules. Working out which flows from whether you are actively trading, i.e. continually buying and selling, or are investing, that is buying and holding.
HMRC have said that they will look at each case on its individual merit. Trading will be income tax and investing will be capital gains tax. What this means it that you need to keep track of what you buy, what it cost you and what you sell ... and any profit or loss you make. Then you need to tell HMRC about your profits and losses.
"If you are a coin miner, then that is a trading activity and liable to income tax!"
If you have bought and sold cryptocoins and need help with your tax return then give me a call on 01234 752 566 or click here to ping over an email. Similarly, if you would like more information about cryptocurrency training and forums then just ask!
Until next time ...
If you're looking for a new accountant to help grow your business, do visit www.jvca.co.uk and discover how Jonathan Vowles Chartered Accountants can help you!
I've been an accountant in and for business since 1987 and have a wide experience of consultancy, audit, accounts, taxation and wealth planning work from individuals and small businesses to multinational corporations and charities.
My eclectic interests in growing and developing business span a number of areas … and can be summarised as strategic business advice and tax saving advice.
I have worked with the Chamber of Commerce to deliver courses for people about starting up in business and have lectured about tax for a major accountancy practice and for Milton Keynes College.
I relax by reading fiction and by getting away from the office in a campervan.