At LF Legal we receive many enquiries about crypto-currencies (also known as ‘coins’ or ‘tokens’). We believe they are here to stay, because they are such a useful financial tool. If buying coins remember:
You are speculating, not investing: coin have no guaranteed minimum value. They don’t pay dividends or interest. They are not a loan or shares. You do not get to own part of a company. If no one wants to buy them from you later, then they are worthless. Given all these disadvantages, why are large numbers of people buying them so enthusiastically? Usually because:
- they think over time coin values will increase much more than shares or gold;
- a particular coin offers owners attractive benefits (most coin are more like a tradeable Amazon Prime subscription than shares);
- they like the company;
- coins are unregulated most places, so until regulation occurs there may be tax, privacy and international money-transfer benefits.
Not all coins are the same: there are now over 1,600 traded coins. Popular coins are likely to increase in value over time; unpopular coins may become worthless. Most purchasers have a strategy to reduce risk. Do your research!
Where to buy: existing coins are sold on numerous (mostly private and unregulated) websites/exchanges. New coin being issued by a company can be bought direct from the company via an Initial Coin Offering (ICO). Buying new coin is riskier, but the rewards can be higher and the purchase price cheaper. There is no ‘official’ price for any coin therefore prices vary widely, so shop around. Be careful: the market is mostly unregulated and fraud is common. Do your research, get advice.
Prices fluctuate wildly: the market is truly global but relatively small. Small markets suffer from volatile pricing because it takes only a few big trades to change the price. The coin price trend is definitely trending upwards over time – for the more established currencies anyway. Those buying for the long term tend to purchase more established coin like Bitcoin and Ethereum. Those hoping for a quicker return often buy cheaper, newer, currencies either from existing owners or direct via an ICO. Many focus on just the top 5 or 10 most traded coins, in any event, the golden rule is only ever spend what you can afford to lose.
Storage: you will need an electronic ‘wallet’ to hold/trade your coins. Some exchanges offer that service, but be aware that if the exchange is hacked (and many try) your coin is lost. Safe storage is important.
Cost: look to spend £100 upwards per purchase. Below that, the purchase fee makes it mostly not worthwhile. Get advice before spending over £100,000 because accessing that amount of coin in one go can present difficulties.