Cryptocurrencies are not regulated by the Financial Conduct Authority (FCA), and protections like the Financial Services Compensation Scheme (FSCS) do not apply. You should only invest money you can afford to lose.
What are the opportunities and risks of small investments in cryptocurrency?
Investing small amounts in crypto can be a way to explore the market with limited exposure, but there are risks to consider alongside any potential benefits:
Opportunities:
Low entry threshold: Cryptocurrencies can be bought in small units, such as fractions of Bitcoin (Satoshis), which means you can hold even modest amounts.
Smaller stakes: Investing small amounts in crypto means you’re only risking a limited portion of your budget.
Learning experience: Some people use small investments to become familiar with how the crypto market works.
Flexible: Amounts can be adjusted to fit your budget.
Risks:
Transaction fees: Smaller purchases can be disproportionately affected by fees.
Slower growth: Potential gains are smaller compared to larger investments.
Market volatility: Small investments are still exposed to sharp price fluctuations.
Investing small amounts can be a practical way to get started in the crypto market. Plus, cryptocurrencies offer a way of diversifying your portfolio, as their markets often move independently of traditional financial markets.
Is it worth investing in Crypto? What to consider
Even small investments in cryptocurrency can play a role in building your experience and confidence with crypto. Here are a few key points to keep in mind:
Transaction fees can reduce returns
Individuals investing small amounts in cryptocurrency may notice the effects of platform or network fees on eventual returns.
The market is volatile
Crypto prices can rise or fall suddenly, and you could lose all the money you invest.
Think about storage options
A common approach is to hold crypto in a wallet, such as a hardware wallet, which stores your private keys (essentially a “password” that proves you own a certain amount of cryptocurrency).
Tax may apply
As a UK resident for tax purposes, you may need to pay Capital Gains Tax on any gains you make when selling or otherwise giving away cryptoasset tokens (including Bitcoin). Tax treatment depends on individual circumstances and may change.
Read more in our dedicated article on crypto taxes in the UK.
Consider diversification
Some investors spread smaller amounts across exchange-traded funds (ETFs), stocks, cryptocurrencies, or crypto indices — which track the performance of a group of cryptocurrencies — to observe market behaviour and reduce exposure to the price swings of a single cryptoasset (though it is not without risk)
Using the DCA (Dollar-Cost-Averaging)
This involves investing small amounts in crypto at different price points (as in the pound cost averaging strategy), potentially reducing the impact of short-term volatility, though it doesn’t eliminate risk entirely.
The Bitpanda Savings Plan lets you invest smaller amounts on a regular basis, which can help smooth out the effects of buying at a less favourable time.
