Like any investment, making money depends on what price you buy and sell an asset for. If you sell when its price is higher than you bought it for, you will make money.
If you sell for a lower price than you bought it for, you will lose money.
If you had invested in bitcoin at the start of 2020 and sold on 31 December 2020, you would have made a 300% profit
If you had invested in bitcoin at the start of 2018 and sold on 31 December 2018, you would have made a 73% loss
Bitcoin is extremely volatile so the trick is not to panic and crystallise your losses by selling when its value inevitably falls. This is the same with all investments.
Bitcoin price graph
In 2018, MPs called cryptocurrencies a “Wild West industry”
Ways to invest in bitcoin
Buying the coins (or unit of a coin) on a cryptocurrency exchange is the most common way of investing in bitcoin.
But there are other options:
Buy shares in bitcoin-related companies
You could invest in cryptocurrency exchanges or even buy shares in companies that are accepting bitcoin as payment.
You could invest in a bitcoin exchange traded fund ETF. This copies the price of the digital currency, allowing you to buy into the fund without actually trading bitcoin itself.
Invest in blockchain technology companies
You could invest in the blockchain network (the system for recording information about crypto). For example, tech platform Solana claims to be the fastest blockchain in the world.
Several investment companies are launching bitcoin funds.
It will still be volatile, but it could be easier to sell your investment and get your money back than investing directly.
There are also funds that have some exposure to bitcoin as well as traditional assets like shares and bonds.
These are a form of financial derivative that gives you the right to buy or sell bitcoin at a set price (known as a strike price) before a certain date of expiry.
Unlike buying Bitcoin cryptocurrency outright, bitcoin options enable you to take a speculative position (up or down) on the future direction of a market price.
You would buy a call option if you believe the market price would increase:
If your prediction was correct and the market price increased above the bitcoin option’s strike price, you’d be able to buy bitcoin at the pre-specified price. How far the bitcoin price rose past the strike price determines how much profit you’d make.
If your prediction was wrong and the price of bitcoin fell, you could let the options contract expire and only lose the premium you paid to open the trade.
Read about Lewis, who taught himself about cryptocurrency and made £8,500 in less than a year after setting up an account with trading platform eToro.
Is bitcoin bad for the environment?
The digital currency uses as much power as the Netherlands every year, with just 30 countries using more energy, according to researchers from the University of Cambridge.
Computers that mine bitcoin use up to 1% of the world’s electricity supply.
While some of bitcoin’s consumption is renewable (an estimated 39%), fossil fuels are still being used to power the mining and servicing of the digital currency.
This is why electric car manufacturer Tesla has stopped accepting crypto payments, causing bitcoin to fall. Find out more in our Guide to eco-friendly cryptocurrencies.
What are the fees when buying bitcoin?
If you want to buy and sell bitcoin, there are usually fees to pay, such as:
These usually cost a few percent of the total transaction value.
Do financial institutions support bitcoin?
Governments, regulators and companies are looking closely at bitcoin and other cryptocurrencies.
Companies adopting bitcoin include:
Investment companies that are showing an interest include:
The world’s largest asset manager, BlackRock, opened two of its funds to the possibility of investing in bitcoin futures
UK based Ruffer Investment Management added bitcoin to its multi-asset portfolios before pulling out five months later with a $1.1B profit
In December 2020, one of the world’s biggest index providers, S&P Dow Jones Indices announced it would launch indexing services in 2021 for over 550 of the top traded cryptocurrencies.
The Bank of England (“Britcoin”) and other central banks are exploring the possibility of their own central bank-backed digital currencies.