Have you missed out on Trump’s bitcoin bounce?

Cryptocurrency investment has soared since the election of Donald Trump — bitcoin jumped to a record $92,962 (£73,369) on Wednesday — up 36 per cent from the $68,318 value on the US election day of November 5.
Ethereum, another cryptocurrency, jumped almost 40 per cent to about $3,260 and is now at $3,100.
Trump’s view of bitcoin has changed. He called it a “scam” in 2021, but this week the president-elect said he wants America to become “the crypto capital of the planet”. At a bitcoin conference in Nashville in July he said that if he won the election: “The rules will be written by people who love your industry, not hate your industry”.
He also said he would ensure that his administration did not sell the government’s stake in cryptocurrency, estimated to be about $5 billion.
Trump’s latest views go against those of the Financial Conduct Authority (FCA), the City regulator. It described cryptocurrency as “high risk and speculative”. The FCA said: “If you decide to invest in crypto then you should be prepared to lose all your money.”
In 2020 the FCA banned the sale of tracker funds that allowed investors to profit from crypto without having to actually buy it. These so-called exchange-traded products are available to investors in the US and Europe. The FCA has also imposed strict regulations on how crypto can be marketed in the UK.
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Those who invested in these tracker funds before the ban, however, for example through platforms such as Hargreaves Lansdown, can continue holding their investments and sell as they wish.
And the faithful have been rewarded. Since the start of 2023 the value of bitcoin has surged 432 per cent. By contrast, the FTSE 100 index of leading UK shares is up about 8 per cent.
American investors appear to be more attracted to crypto than those in Europe. Between January and October this year, the total value of cryptocurrency held by US investors increased $26.8 billion to $86.5 billion, according to the data firm Morningstar. In Europe there was a net $121 million of withdrawals from crypto assets, bringing the total held down to $11.9 billion.
Crypto is digital money that is not issued by a central bank. Instead it is based on a mathematical formula that creates a finite number of coins or currency that is recorded on a central database, known as a blockchain. Bitcoin was the first cryptocurrency, launched in 2009.
As there is no physical version of the currency, you have to hold it in a digital wallet. Like gold, there is only a limited supply, which means that governments cannot manipulate the value to suit their needs as they can with normal currency by making interest rate changes or introducing quantitative easing (increasing the money supply and using it to buy government bonds), ultimately reducing the buying power of cash.
Marion Laboure from Deutsche Bank Research said: “People have always sought assets that were not controlled by governments. Gold has had this role for centuries. And yes, I could potentially see bitcoin become the 21st-century digital gold. Let’s not forget that gold was also volatile historically.”
Since 2020 the polling group YouGov has been carrying out surveys twice a year, asking samples of about 2,000 people if they, or anyone they know, has ever bought cryptocurrency. The proportion who said yes went from 8 per cent in January 2020 to 12 per cent in July this year.
For those aged 18-24, the proportion rose from 10 to 19 per cent, and for the over-65s it went from 1 to 3 per cent. In July’s survey about 18 per cent of men said they or someone they knew had invested, up from 4 per cent in 2020. For women it was 5 per cent, up from 2 per cent.
The market is not yet regulated in the UK which means that you are unlikely to be able to use the Financial Ombudsman Service if you have a complaint about the firm you buy crypto through. You will also not be covered by the Financial Services Compensation Scheme, which guarantees deposits of up to £85,000 if the firm goes bust.
Susannah Streeter from the wealth manager Hargreaves Lansdown said that Trump’s election means that “bitcoin speculators are betting on a more clement regulatory environment and have expectations that the authorities may build up a reserve crypto fund, helping to lift demand.”
She added, however, that Trump has been “unpredictable in the past about promises made on the campaign trail”. She also said that further rises in crypto values were not guaranteed. “Given the sharp moves upwards, fresh corrections could be around the corner”.
Historically, bitcoin’s price movements have been cyclical. This is because cryptocurrency is created through “mining”, where computers solve complex maths problems to create new coins. Roughly every four years bitcoin undergoes a “halving event” where the rate at which new bitcoins can be created is cut in half. The idea is to reduce the supply of new bitcoins, driving up the price. The value of bitcoin tends to spike before these events then drop afterwards.
The last bitcoin “correction”, when the price changed dramatically, was sparked by the collapse of the crypto-related firms FTX and Terraform Labs in 2022, which caused panic among investors. Between November 13, 2021, and December 31, 2022, its price fell 74 per cent.
Streeter said: “Anyone considering speculating in crypto should proceed with caution, use money they can afford to lose, and only dabble at the fringes of their well-diversified portfolios.”
Laith Khalaf from the wealth manager AJ Bell suggested holding no more than 1-2 per cent of your overall portfolio in crypto.
Fanny Snaith, who runs a money-coaching business, advised against being tempted by sudden increases in the price: “The notion of bitcoin reaching $100,000 at some point is simply that — a notion. It might; it might not. If you know anyone who says it will, ask them to show you their crystal ball.”
To buy crypto, you will need to register with a firm that allows you to hold the digital currency in what is commonly called a digital “wallet”. Companies such as eToro, Gemini and Coinbase offer access to the big cryptocurrencies, including bitcoin, ethereum and solana.
You normally pay a transaction fee when you trade or want to convert the contents of your digital wallet into cash. You cannot easily buy goods using crypto so you usually need to exchange it for traditional currency first.
One of the biggest crypto firms, eToro, charges a 1 per cent fee when you buy or sell crypto assets. You will also pay a 2 per cent fee when you want to move your money to your crypto wallet.
If you don’t want to buy crypto directly, you can invest through funds or in companies whose share price is closely linked to the value of crypto assets.
AJ Bell said its clients were particularly interested in the American software firm Microstrategy, which surged in value after Trump’s election. The company is reported to have bought 27,200 bitcoin for about $2.03 billion between October 31 and November 10, the most it has bought since it started investing in cryptocurrency in 2020.
Microstrategy’s share price is up almost 400 per cent this year. The FTSE 100 by contrast is up 4.4 per cent while America’s S&P 500 is up 26.5 per cent.
Another option is the crypto trading firm Coinbase, again based in America. Its share price is up 106 per cent this year.
There are some funds that hold companies involved in cryptocurrency. For example, the WisdomTree Issuer Blockchain exchange-traded fund (ETF) invests in Microstrategy and Coinbase. It launched in September 2022 and is up about 167 per cent in a year.
A more established fund is Invesco Markets II CoinShares Global Blockchain ETF, launched in 2019. It is 165 per cent over five years.
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Gains from crypto assets are subject to capital gains tax (CGT). The rate is 18 per cent on the gain for basic-rate income taxpayers (up from 10 per cent last month after changes in the budget) and 24 per cent for higher or additional-rate payers (up from 20 per cent). You can generate up to £3,000 a year from capital gains before any tax has to be paid. The allowance has been reduced from £12,300 in 2023.
HM Revenue & Customs is cracking down on crypto investors who fail to declare their gains. It has sent “nudge letters” to those it suspects of failing to pay, warning that they face penalties on top of any tax due.