Cryptocurrency – are you curious about the new craze in fintech?
Did you hear that Bitcoins were sold in 2013 for $22 each, and just over four years later hit a peak value last week of just over $5,700 each?
Do you know that there are over 900 cryptocurrencies in circulation, some of them selling for just a few pence each right now.
What is cryptocurrency?
Cryptocurrencies are digital assets, more alike to commodities and securities than they are to actual currencies.
They are created by organisations, groups and individuals, and are completely decentralised.
They are not backed by either governments or banks, and are created and managed on a platform of blockchain technology.
Cryptocurrency blockchains are open digital ledgers, an electronic record of transactions, not stored in a single place, but spread across cryptocurrency owners and “miners”.
The technology behind the blockchain and the created and storage of cryptocurrencies is complex and unregulated.
This leads to many of the concerns around the longevity, value, and security of the market.
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Global Acceptance of Cryptocurrency
Despite the origins of cryptocurrency, there is no doubt the market has stepped into the mainstream.
Cryptocurrency can no longer be ignored by governments and financial institutions as either an asset, or a method of purchase.
There is no doubt that some investors are making incredible amounts of money as the market value accumulates – tipping over $150 billion in the past few months.
Global attitudes are mixed. Cryptocurrency is banned in China, but widely accepted as a method of payment across Japan. Russia is likely to be the first country to launch a government backed cryptocurrency.
The Canadian Securities Administrators have for the first time backed an ICO in Canada, as they begin to regulate a healthy Canadian cryptocurrency market.
But cryptocurrency is not regulated?
It wasn’t, but the sheer growth of the market and its emergence into mainstream investment has meant that regulators are needing to take action.
Initial Coin Offerings (ICOs) are now the source of new coins hitting the market, its increasingly judged that these are securities, and should be treated as such.
Securities regulators are starting to exert their authority on the market, though the success of their control has yet to be proven.
What is the risk?
The risk is huge, but so is the potential opportunity. If you are saving for retirement, or your children’s university fund, cryptocurrency might not be a risk you are not willing to take.
If you can afford to invest and lose, even a small amount, you may feel like a gamble on the cryptocurrency market.
How to invest?
Unless you are heavily into the technology behind cryptocurrency, there are two ways to invest in cryptocurrency.
- #1 Buy cryptocurrency from an online broker, or exchange, in the UK
You can buy Bitcoin, Ethereum or one of the many “altcoins”, or alternative coins, from an online broker, in a similar way to speculating on the stock market. There are a number of reputable UK based brokers, and many worldwide.You’ll find a list of platforms and exchanges below.
You have to remember that just as the coins themselves are not regulated or controlled, and some of the brokers and exchanges are not either, so thorough research is required.
- #2 Invest in an ICO
Think crowdfunding here. ICO’s are organisations raising capital to launch, usually a technology product or service, by offering their tokens, or coins, for sale.Buyers will be able to do one of two things with their tokens, spend them on the product or service when it launches. Or, treat them as a share in the organisation, ready to accumulate value as the ICO launches and grows. Then to sell or trade later, hopefully at a profit.The risk from these so far unregulated ICO’s is what happens if their ICO, or crowdsale, is not successful? What happens if they vanish without ever launching their product or service? What happens if their product is a total flop? Right now, any individual or organisation can launch an ICO with very little effort.ICOs pose a significant risk.
Should I take the risk of a cryptocurrency investment?
Based on what you read in this article, no way.
The cryptocurrency market is complex.
If you are serious about investing in cryptocurrency you need to thoroughly research its origins, the technology behind it, and the risk.
You then need to do the same for any coin, or ICO, you are considering investing in. Then, you need to look at your own risk tolerance, can you afford to lose every penny? If the answer is no, consider safer types of investment.
If you’d still like to look into options, here are different ways to invest below.
It is actually possible to invest in a tracker to the price of Bitcoin in a self-invested pension or stocks and shares account. This is for those registered as sophisticated investors only.
Many of these also sell Ethereum and other cryptocurrencies.
You can compare prices on bittybot.
When buying cryptocurrencies directly, ensure you know and understand how to safely secure the private cryptographic keys.
With a contract for difference (CFD), you are not buying the underlying asset itself.
- eToro allows you to purchase CFD in either Ethereum or Bitcoin.
- IG is a well known CFD and spread-betting provider.
Keep in mind that all cryptocurrencies have proven volatile, and you may get back less than you originally invest.