There are three ways to get bitcoin: you can mine it, you can earn it or you can buy it. Unless you have access to cheap energy or a specific computer-related skill or interest, I would forget mining. The days when you could mine it using ordinary home computers have passed.
Earning it is simple – all you need is a wallet. As long as the buyer of whatever product or service you are selling is happy to pay you in bitcoin, send them your wallet address and they can pay you in bitcoin. In other words, this is just like a physical wallet. Someone sends you bitcoin in the same way that they would hand you cash. It’s just digital.
An easy place to get your first wallet is blockchain.com (you can also buy and sell bitcoin here). But make sure you set up two-factor authentication (2FA). If you don’t protect your wallet then – to continue the above analogy – you risk someone stealing it. There is also the option for 3FA – where you can only get into the site with a password, and then confirm via email and mobile phone.
However, a wallet with Blockchain is not a long-term storage solution. It is just a starting point (you wouldn’t keep gold ingots in your wallet). But more on storage solutions later. Here, we focus on how to buy bitcoin.
The UK regulator, the Financial Conduct Authority (FCA), has made life very difficult for any UK investor who might be interested in the world of crypto. The FCA, in its wisdom, has just banned the sale of crypto derivatives and exchange traded notes to retail investors. The result is that investors lose the comparative safety these products provided.
If retail investors want to invest in crypto – which they should, this is the future of finance, after all – then they are forced to take technological risk as well as the risk of the actual investment itself. If anyone from the FCA happens to be reading this, I urge you to reconsider this ruling. It makes life more risky, not less, and is thus contrary to the purpose of your body.
However, we are not here to lobby. We are here to tell you about how to buy bitcoin, and my first dollop of wisdom is this: before putting any significant sums to work in crypto, I urge you to research as much as you can. Read about bitcoin. Listen to podcasts. And, above all, try out the tech.
Buy small amounts of bitcoin, practise transacting in it, practise storing it. Get on top of the tech before you risk any significant capital. This will take you several days, but it’s worth allocating the time.
The best exchanges to use to buy bitcoin
The major exchanges include Coinbase, Bitstamp, Binance, Kraken, Bitpanda, Gemini, SFOX, crypto.com, CoinCorner, Bitfinex and eToro. Generally, the more you want to buy, the more paperwork you have to fill in. They each have their little quirks. I recently tried setting up accounts with some of these and my findings were as follows.
With Bitstamp and Bitpanda, I found it straightforward to get set up and make deposits, ditto Gemini, which is the business child of the Winkelvoss twins. (However, my account on Gemini was frozen for several days due to my pressing the wrong button, just as bitcoin was rocketing. It took me an age and an email to the boss, who I happen to know a little from way back, to get it unfrozen – so there’s a slight user-unfriendly black mark against Gemini there).
Binance was also fairly straightforward (though easier on phone than desktop). Its interface isn’t the most pleasant, but it and Bitfinex have the broadest range of altcoins of the major exchanges, so if the appeal of little-known coins which could go up 100-fold or lose you your entire investment is for you, then Binance and Bitfinex are as good as any. But for some unknown reason Binance has reduced the amount of sterling it is prepared to accept in deposit to £4,000, and I can’t get an answer from them as to why, which again makes it UK-user unfriendly. Meanwhile, Bifinex only accepts euro and US dollar deposits.
Crypto.com was easy to set up on my phone, although not on my desktop. However, and more to the point, it has halted sterling deposits, so, again, it’s a bit useless for UK investors. CEX.io was easy to get started with, but for larger amounts you need extra verification. I sent in the forms weeks back and have heard nothing back.
Once you’re set up, you’ll experience the delights of sending money to your exchange via a bank. You might end up having to make a phone call to the bank at this point (and you’ll wait a while; banks’ response times have got very slow in this new Covid era).
Easier options for small amounts include Bittylicious and LocalBitcoins, or even bitcoin ATMs (but both their commissions and spreads are vast).
Revolut makes it easy to buy bitcoin (and easy to open an account). But you can’t then move your bitcoins elsewhere. You can only sell back to Revolut, which is somewhat besides the point. But it also means Revolut solves the storage problem for you.
Advanced users and purists will prefer the decentralised exchanges, but we will leave those for another day.
Other ways to buy bitcoin
If you’d still prefer some sort of listed option, then you could buy Microstrategy (Nasdaq: MSTR) which has become something of a proxy for bitcoin. That’s because last year, Microstrategy CEO Michael Saylor, on seeing the Federal Reserve’s massive money-printing response to Covid, converted his company’s cash pile ($500m) into bitcoin. Later that year he raised another $625m to buy even more.
In total, he spent $1.125bn buying 70,470 bitcoins, at an average of $16,000 per bitcoin. Issuing debt to buy bitcoin is a bold move. But Microstrategy’s share price went from around $150 to over $1,000. His company now behaves like a sort of Nasdaq-listed bitcoin proxy, and Saylor has become one of the biggest spokespeople for the bitcoin space (he arguably inspired Tesla founder Elon Musk to do the same, and no doubt Musk jumping on the bandwagon will persuade others to follow).
If you can access them, there are the Sweden-listed Bitcoin Tracker One (Stockholm: COINXBT) or the US-listed Grayscale Trust (OTC: GBTC).
London has a listed bitcoin miner, Argo Blockchain (LSE: ARB), though its share price has gone bananas. Canada has several tinycap bitcoin plays, if your broker can access the market. There is Venture-listed Neptune Digital Assets Corp (Vancouver: DASH), which is a play on the altcoin, Dash.
Finally, there’s Cypherpunk Holdings (Canada: HODL). I was a director of this company and even briefly CEO, but had to stand down last year due to an illness in the family. We set up the company to invest in privacy technologies and it now has the ninth-largest bitcoin treasury of any public company, as well as some very interesting other investments in privacy technologies. Its CEO is former Lithuanian poker champion Tony Guoga, who also has a huge stake in the company. In Moe Adham and Jon Matonis it has two of the most crypto-literate directors you could find. This is still just a tiny company (market cap around C$30m), but it has potential.
One caveat: in its previous incarnation this was a mining exploration company in Asia, and there are two outstanding court cases which date back to this era. One is a case being brought by the former CEO for an unpaid discretionary bonus, and the other a disputed tax liability in the Netherlands. Covid and other factors have led to delays in these being resolved. It is not thought that either case will harm the prospects of Cypherpunk Holdings, but a court case is a court case so it is right to flag it up. Hopefully, 2021 will see both cases closed.
If you’d like to read more, Dominic has put together a downloadable Beginner’s Guide to Bitcoin for MoneyWeek subscribers, which includes a bonus section on other cryptocurrencies. If you’re not already a subscriber, sign up now to get the report plus your first six issues free.
