In this article we’ll take a look at how you can easily buy Bitcoin or other types of cryptocurrency.
Bitcoin has been hitting the headlines again as it reaches new all time highs. As I write this it’s priced at over $20,000 per coin. That’s a 224% increase this year.
Depending on who you listen to, this could be just the start of things to come, or it could be the beginning of the end.
My personal take on it goes a little something like this. I don’t think there is any doubt that there are risks involved with Bitcoin and other cryptocurrencies. They are highly volatile assets, whose price could to zero and they are not backed by financial regulators like the Financial Conduct Authority (FCA).
As such I don’t think there is any argument for putting your life savings into Bitcoin or another cryptocurrency. You would be gambling with your livelihood.
Now that said, if it does take off, and do what the Bulls suggest, then it could provide amazing returns for investors, so, equally, I don’t there’s any argument for not having some exposure to Bitcoin or other cryptocurrencies.
The question then becomes how much? And of course this will depend on who you are and where you are in life. And I’m sure it goes without saying that you should do some research and have a good think about it before you invest.
Personally, I think it should be a very small part of your overall investments. And by small I’m talking 1% or less. That way if it does go to zero you haven’t lost much, but if it continues to rocket to new highs you’ll share in some of the gains.
And if you do fancy entering the market, it is a whole lot easier than it was last time Bitcoin was hitting new highs. To help you get started, I’ve compared a few options you can use to get exposure to this exciting asset class.
Brokerage Accounts
If you have a brokerage account then the easiest way to get access to Bitcoin or other cryptocurrencies is through a fund. (if you don’t have a brokerage account I’ve compared a few here).
You can buy them in exactly the same way you buy shares in companies or Exchange Traded Funds (ETFs).
There are a few cryptocurrency funds out there so it’s probably worth having a look at each one in a bit more detail.
First there’s the recently launched Bitwise 10 Crypto Index Fund (ticker: BITW). It holds the 10 largest crypto assets weighted by market cap, screened for risks, and it’s designed to make it easy for investors to get high quality exposure to the crypto market.
This is similar to the Grayscale Digital Large Cap Fund (ticker: GDLC) which holds the top 5 Cryptocurrencies in a market cap weighted fund.
Greyscale also have various individual cryptocurrency funds like the Grayscale Bitcoin Trust (ticker: GBTC) that enable investors to focus their investments on a single cryptocurrency.
Then there’s the Bitcoin Tracker One fund from Sweden (ticker: COINXBE) which is totally invested in Bitcoin (they also have an Ethereum fund).
And finally there’s the BTCetc Bitcoin Exchange Traded Crypto (BTCE) from Germany.
So you can simply buy a few shares in whichever of these takes your fancy. What’s not to like?
Well, there are a few issues. The first of these being costs.
There are lots of fees involved with investing, but the main one, and the one that will certainly impact your returns, is ongoing charges. These are fees that you have to pay continuously as long as you are invested in the fund. And they are predominately determined by a fund’s expense ratio.
The Bitwise 10 Crypto Index Fund and the Bitcoin Tracker One funds have annual expense ratios of 2.5%. The other two have 2% expense ratios.
It doesn’t sound like much, but look at it this way. These are essentially index funds. There’s no magic going on behind the scenes. There’s no superstar fund manager or complex algorithm that might justify the fee for a hedge fund for example. And make no mistake these are hedge fund like fees.
Index funds for stocks and bonds aren’t anywhere near this high. The Vanguard All Word ETF has an expense ratio of just 0.22% and gives you access to the global stock markets in one fund. The iShares FTSE 100 ETF is even cheaper. It’s 0.04%!
These cryptocurrency fund providers will argue these fees are justified to account for the higher fees associated with dealing with cryptocurrency. You have to pay for custodians to look after your crypto assets and you have to pay more to your accountants etc.
There’s also the argument that 2% is a lot of money when the stock market goes up 6% (it’s a 3rd of your gains!) but paying 2% when your investments go up 224% is probably a little easier to swallow.
Another issue relates to the fact that the structures behind these funds aren’t too familiar to most investors. I’ve heard them explained as sharing some similarities with ETFs and some similarities to close end funds, yet not being entirely like either.
And you don’t really have to understand what the difference means, only that there is a difference. This is because the simple fact they aren’t in a recognised format means there must be something about them that the regulating bodies don’t feel comfortable with. Otherwise they would be in a format we all recognised like an ETF.
Last but not least is the fact that your brokerage might not have these crypto funds available.
Using eToro
One brokerage that will definitely give you access to cryptocurrency is eToro. They’ve got all the main crypto assets on their platform.
Many people know eToro due it’s commission free dealing on stocks and ETFs, but what is less known about eToro is that it makes it very easy to buy cryptocurrency and unlike with cryptocurrency exchanges which I’ll come to later, eToro makes it very easy to fund your account. You can even use PayPal.
As well as being able to invest in a wide range of cryptocurrencies including Bitcoin, eToro also have what they term the CryptoCopy Portfolio. This is essentially a market cap weighted cryptocurrency fund containing Bitcoin alongside other cryptocurrencies like Ethereum. The fund is automatically rebalanced annually.
Essentially you get something very similar to the funds discussed above, but without the high ongoing charges which is a major advantage which over the long term should seriously impact your returns.
That said, there are a few things you need to think about.
First, though you can buy individual cryptocurrencies in small amounts (as little as $25 dollars per trade) you need to invest a minimum of $5000 in copy portfolios.
It is also worth being aware of the charges for buying cryptocurrency. Rather than standard commissions, cryptocurrency charges come in the form of spreads which is the difference between the buy price and the sell price. These differ depending on what cryptocurrency you are purchasing.
With eToro Bitcoin attracts a 0.75% spread, whereas another cryptocurrency MIOTA attracts a spread of 4.5%. On a £1000 investment this would equate to a charge of £7.50 for Bitcoin and £45 for MIOTA. And make no mistake, these are high when compared to cryptocurrency exchanges (two or the three we’ll be looking at charge less than 0.3% across the board).
That said, like I mentioned earlier, the fees that really affect your investments are ongoing charges, not one off buy and sell fees and eToro doesn’t charge ongoing charges on their copy portfolios.
The other advantage over cryptocurrency exchanges is that eToro is regulated. It is regulated by the Cyprus Securities and Exchange Commission (CySEC), the UK Financial Conduct Authority (FCA), the Australian Securities and Investments Commission (ASIC) and is registered with FinCEN in the US. (see official wording for Europe & the UK at the end of this section).
Disclaimer: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 76% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. Don’t invest in Cryptoassets like Bitcoin unless you’re prepared to lose all the money you invest. This is a high-risk investment, and you should not expect to be protected if something goes wrong. Take 2 mins to learn more. eToro (Europe) Ltd., a Financial Services Company authorised and regulated by the Cyprus Securities Exchange Commission (CySEC) under the license # 109/10. eToro (UK) Ltd. is authorised and regulated by the Financial Conduct Authority (FCA) under the license FRN 583263.
Using a Cryptocurrency Exchange
But the fact that cryptocurrency exchanges aren’t regulated to as higher standard as brokerages doesn’t put people off using them.
According to research by the FCA, 77% of participants purchased their cryptocurrency from online exchanges.
As the name suggests these platforms enable you to exchange currencies. Most of them let you exchange traditional currencies like pounds or dollars for crypto currencies and exchange different cryptocurrencies. You can then keep your investments on their platform or you can take them away.
In reality these exchanges work like a stock broker. At least from the perspective of the investor. The main difference being the option for moving your investments outside the exchange into your own cryptocurrency wallet which come in both hardware and software formats.
Some investors think you should keep your investments in your own wallet, some investors prefer the convenience of an exchange. Some investors have hardware wallets whilst others keep their wallets on their phones. It all comes down to personal preference.
And though there has been some bad news about exchanges getting hacked, this has tended to happen to the smaller platforms. The larger exchanges now take security very seriously and they have a lot of money to pay for the very best technology and personnel to make sure they keep investors money and crypto assets safe.
Unfortunately for those who like to buy British, non of the major exchanges are located in the UK. The three most well known, Coinbase, Kraken and Bitfinex are all located overseas. Coinbase and Kraken are US based and Bitfinex is located in Hong Kong.
Bitfinex is aimed at people with plenty of cash, as you need a minimum deposit of £10,000 to fund your account. The other two don’t have minimum funding requirements, but they all have associated fees. At the time of writing Coinbase’s fees are the highest and Bitfinex’s fees are the lowest. See below:
| Exchange | Trading Fees |
| Coinbase | Around 0.5% + either a flat fee of between 99p and £2.99 when you spend between £10 and £200 or 1.49% (you pay whichever is the highest) |
| Kraken | 0.26% on trades up to $50,000 then 0.24% on trades up to $100,000 |
| Bitfiniex | 0.2% |
In short, if you are willing to invest $10,000 you could consider Bitfinex. Otherwise you will be better off with one of the US exchanges. If the name is important to you then you could choose Coinbase, but if fees are your most important concern Kraken would be your best choice.
Exchanges aren’t suitable for everyone because they can be a little complicated, especially in the beginning and especially if you decide to keep your funds in your own cryptocurrency wallet.
The Bottom Line
So there you have it. If you’ve already got a brokerage account and aren’t put off by the ongoing charges you could simply invest in a cryptocurrency fund.
If you haven’t already got a brokerage account and would like to avoid ongoing charges you could consider eToro.
Or if you are willing to put in a little extra work or really want to keep fees to a minimum you could go with a cryptocurrency exchange.