Buying and selling cryptocurrencies is seen as a risky form of trading and it can lead some investors to worry about the legalities when trading on a cryptocurrency exchange.
This guide will explain what is and isn’t legal when it comes to crypto trading.
Can I buy crypto in the UK?
You can buy cryptocurrencies such as Bitcoin in the UK and in some instances you can get FREE bitcoin from crypto exchanges like Coinbase.
There are thousands of different crypto assets and retail investors or traders can research and purchase them through cryptocurrency exchanges.
Many investors could purchase Bitcoin and other digital assets through crypto ATMs up until March 2022 but UK regulator the Financial Conduct Authority (FCA) has said these machines do not have approval to provide these services.
It is still perfectly legal to purchase this asset class through a cryptocurrency exchange though.
The only restrictions you may find is with your own bank.
Some financial institutions have banned users from sending or receiving money from a cryptocurrency exchange.
This may mean bank transfers are not possible to add or withdraw money to and from a cryptocurrency wallet.
Banks have done this to protect users from scams and to limit their losses.
There is an argument that banks are worried about the decentralized nature of cryptos which can exclude financial institutions.
Some also say that people should be free to use their money as they wish as long as they understand what they are buying and take responsibility if they do lose funds.
Is cryptocurrency legal in England?
Cryptocurrencies are legal in England.
Some countries such as India and China have looked to ban Bitcoin purchases and other virtual currency transactions but England has no restrictions.
That means you can buy Bitcoin and other crypto assets in this country.
Cryptocurrencies are not recognised legal tender in England but some brands will accept them as forms of payment for goods and services.
They will only have real value once converted back into real or fiat currency though.
There are no rules about who can setup a cryptocurrency, which does create a high risk of scams.
Many of the founders of cryptocurrencies are based outside of England and it is important to do your research to check who is behind a virtual currency and its actual use and viability.
The only rules currently surrounding cryptocurrencies relate to anti-money laundering.
This applies more to cryptocurrency exchanges, which are supposed to check who is buying and selling cryptocurrencies and where the money has come from.
Is it legal to buy cryptocurrency in UK?
It is perfectly legal to buy cryptocurrency in the UK.
You need to find a crypto exchange that will let you buy Bitcoin or other forms of the asset.
You can then store your virtual asset in a cryptocurrency wallet.
It is best to purchase your digital asset from an exchange that follows UK cryptocurrency regulations.
Exchanges that facilitate cryptocurrency purchases as well as sales are supposed to be registered with the FCA for anti-money laundering purposes
This means approved platforms need to check who is buying and selling cryptos on their exchange and where the money comes from.
The FCA needs to be satisfied about these procedures and includes approved firms that you can check on its cryptoasset register.
You can also find a list of unregistered cryptoasset businesses on the Financial Services Register.
Another restriction you may find is from your bank.
Some won’t support cryptocurrency transactions so you may have to check with them first.
For example, Lloyds Banking Group and Virgin Money have both banned crypto purchases using their credit cards.
HSBC also won’t approve users who buy and sell Bitcoin and other cryptos through its accounts.
Is it legal to sell cryptocurrency in the UK?
As with any investing or trading, you may at some point want to sell your cryptocurrency.
This is also absolutely legal.
You need to check if your bank will let you receive funds from a cryptocurrency exchange otherwise it could be stuck in your digital or hardware wallet.
Owning Bitcoin and other crypto currencies does have some responsibilities though.
You may need to pay tax on your activity such as if you decide to sell Bitcoin or other assets in the crypto market.
There may be income tax on crypto trading.
For example, you may have to pay tax on a cryptocurrency you have mined unless they are worth less than £1,000 or you receive under £2,500 from other untaxed income.
An employer may pay you in crypto tokens such as Bitcoin.
This could be classed as a readily convertible asset by HMRC so could be liable for income tax and national insurance payments.
Additionally, you may need to pay capital gains tax when you sell all or some of your crypto holding.
Is it illegal to buy Bitcoin in UK?
Bitcoin is the oldest, largest and best-known cryptocurrency in the world.
Many people choose to buy Bitcoins as their first purchase in the crypto market as it is more familiar.
It is absolutely legal to buy Bitcoin in the UK and to trade other cryptocurrencies.
You will ned to check if your bank has any restrictions on dealing with crypto exchanges though.
Where can I buy crypto legally in the UK?
It used to be possible to buy cryptocurrency from Bitcoin ATMs.
They would let users deposit fiat currency to exchange for a Bitcoin purchase or to buy other cryptos.
However, these have been banned by the FCA as none of the current providers have regulatory approvals to offer ATM services.
Another route is to take part in an initial coin offering.
This is where a user helps fund the development of a cryptocoin or token.
You may get given a portion of or a whole token in return.
The main way to legally purchase cryptos in the UK is through an exchange.
A crypto exchange will list different types of tokens that you can research, buy and sell.
You will usually need to register and provide a name and email address as well as identity details for anti-money laundering purposes.
Once registered, you may need to make a GBP bank transfer to credit your account and you can then use this money for buying cryptocurrency.
You may also be able to use another payment method such as Apple Pay or a credit or debit card.
Buying crypto is risky and you should make sure you trust the exchange you are sending money to.
Using an FCA registered cryptoasset provider is one of the best security tips as they tend to cater more for UK users and will have procedures in place that have been approved by the regulator.
Is cryptocurrency trading legal?
Many cryptocurrency exchanges will also act as a trading platform where you can buy or sell tokens as well as crypto derivatives such as contracts for difference (CFDs).
Cryptocurrency trading is perfectly legal although is probably one of the riskiest forms of investment due to the volatile nature of the asset class.
Trading CFDs is also highly risky as it relies on price changes, which is can be very unpredictable in the crypto sector.
There is a possibility of large losses and even losing all your money.
It is important to understand this before even making your first Bitcoin purchase.
The returns may be higher but you need to ensure you understand and can afford to take the risk when getting involved with digital currency.
We also have a guide on what can influence cryptocurrency prices if you want to learn more.
What laws are there for cryptocurrency exchanges?
There is no standard legal regime for cryptocurrencies.
Cryptocurrency exchanges do have to follow some rules though.
These may vary depending which country the exchange is based in.
In the UK, cryptocurrency exchanges have to be registered with the FCA for anti-money laundering.
This means they need to have checks in place to monitor who is trading on their platform.
The FCA is also working on new financial promotions rules.
This would mean that, as with other high risk financial products, exchanges will have to check that users understand the risks of cryptocurrencies they are buying and must pass an appropriateness test before opening retail investor accounts.
The products could also be limited to high net worth and sophisticated investors as well as those who certify that they understand the risks.
Are there any laws to protect cryptocurrency investors?
Many traditional financial products such as savings or mortgages benefit from Financial Services Compensation Scheme protection.
This means up to £85,000 of money is protected if a provider goes bust.
No such protections currently exist for cryptocurrency investors.
Investors have a small level of protection by using exchanges on the FCA’s cryptoasset register as you can be assured these are genuine platforms that have had their procedures checked by the regulator.
The Advertising Standards Authority (ASA) also has some oversight when it comes to cryptos.
It can ban promotions that are seen as misleading to avoid consumers being mis-sold.
Who regulates cryptocurrencies?
Cryptocurrencies are an unregulated product.
It is a tricky financial product to regulate as the tokens aren’t just UK-based.
The main way that cryptos are regulated in the UK is by how they are sold.
The FCA has given cryptocurrency exchanges anti-money laundering responsibilities and is working on financial promotions rules that will influence how a token is marketed and who can and can’t buy it.
The ASA also has the power to ban unclear adverts online and offline, plus banks have become informal regulators in the cryptocurrency market by banning payments.
Read our guide to find out more about how cryptocurrencies are regulated.
Can the law on cryptocurrencies change?
As with any rules, the law can change at any time.
The UK government and regulatory approach in this country is currently more supportive than other places such as China and India where there have been attempts to ban cryptocurrency tokens.
Instead, UK regulators have tried to improve understanding of the risks of crypto trading and to protect people from losses.
The Treasury and Bank of England have also previously discussed the creation of a state-backed stablecoin to improve financial access.
This would be linked to the value of the pound or fiat currency, unlike cryptos which are decentralised and don’t have any links with traditional money.
The laws and attitudes to digital assets such as cryptocurrencies, and any financial products, can change at any time though so it is important to be prepared and spread your investments across different assets.
How do crypto anti-money laundering rules work?
One of the main criticisms of cryptocurrencies is that the tokens could be used to hide stolen cash or to purchase illegal goods such as drugs.
The FCA has tried to address this by introducing anti-money laundering rules for exchanges selling cryptos.
These are aimed at protecting against enabling the transfer and disguise of funds from criminal activity or the funding of terrorist groups.
Crypto exchanges must check identity documents of users and understand where the money is coming from.
The regulator will only add a provider to its cryptoasset register if it is satisfied with the checks done by these firms.
Has anyone ever got into trouble for buying Bitcoin?
You are legally allowed to buy Bitcoin.
There is nothing illegal about having cryptocurrency in a Bitcoin wallet.
The only way you could get into trouble is if you are using the Bitcoin or other crypto assets for illegal purposes.
For example, US-based cryptocurrency marketplace Silk Road was shutdown in 2013 after it was discovered that the platform was being used to purchased illegal goods such as drugs or personal credit card details.
Its founder Ross Ulbricht was jailed for life for running the marketplace and facilitating the trade of drugs and illegal goods.
What laws do cryptocurrencies have to follow?
There are no actual laws for cryptocurrencies to follow as they are not a regulated product and many of the founders are based around the world.
This is meant to be a benefit of cryptos as it is decentralised and offers payment options that are faster, separate and protected from the control of financial institutions.
It does mean there is a risk of scams though.
Laws and regulations only kick in when it comes to how a cryptocurrency is promoted and sold in the UK.
What is the safest and most legal way to buy and sell cryptocurrency?
Cryptocurrencies are a risky asset so critics will highlight that technically there isn’t a safe way to buy and sell as pricing is so volatile and you could easily lose your money.
There is nothing legally stopping you from buying and selling cryptos as long as you declare and pay any tax required in the UK.
The least risky way of buying and selling cryptos is by using an exchange that is on the FCA’s cryptoasset register.
These exchanges may have privacy and security tips and could also offer protections when you trade cryptocurrencies such as two factor authentication.
An exchange will let you store your cryptocurrency in a hardware wallet where you will get your own unique code to send and receive payments.
Frequently asked questions
Is cryptocurrency legal in the UK?
Cryptocurrencies are legal in the UK.
Other countries such as China and India have tried to ban these digital assets but the UK government and regulatory approach is to inform consumers about the risks to help protect people from losses.
There are anti-money laundering rules that crypto exchanges have to follow when selling tokens.
The FCA is also working on financial promotions rules that would limit crypto trading to high net worth and sophisticated investors and those who certify that they understand the risks and pass appropriateness tests.
Can I get into trouble for buying Bitcoin in the UK?
How can I legally buy Bitcoin?
You can legally buy Bitcoin in a number of ways.
The traditional way was through Bitcoin mining.
This involved using complicated computer systems and high-powered software that solved computer equations and created a Bitcoin.
This is expensive and consumes a lot of energy though.
Alternatively, investors can now purchase Bitcoin and other cryptocurrencies using an exchange.
It can be pricey to purchase Bitcoin as its value has ranged from $40,000 to $68,000 in recent months but many exchanges will let you buy a portion of a token rather than a single one.
This can be a good way of spreading money around different digital assets to reduce your level of risk.