The Cryptocurrency Generation: Children's Interest In Digital Currency

The rise of cryptocurrencies has sparked interest from younger generations, with nearly one in four children aged between 13 and 16 either investing in them or planning to. While there are no laws preventing minors from investing in cryptocurrencies, many crypto exchanges require users to be at least 18 years old. This has not stopped teenagers from investing in crypto, with some sources suggesting that it is a good way for young people to learn about finance and new technology. However, others warn that it is a risky investment, and children could be targeted by scammers.

Children can own crypto, but buying it is harder

While there are no laws prohibiting minors from investing in cryptocurrencies, many crypto exchanges require users to be at least 18 years old. This means that children can own crypto, but they will need help from a parent or guardian to buy it.

Some crypto apps, like Step, allow kids to earn crypto. However, these also require an adult sponsor to open an account for a minor.

If a parent or guardian wants to buy crypto for their child, they can do so by following these steps:

• Decide where to buy the cryptocurrency. You can use a cryptocurrency exchange like Coinbase or a traditional brokerage.
• Pick a place to store the cryptocurrency. You can put your cryptocurrency into a hot wallet or a cold wallet. Transactions are faster with a hot wallet, while a cold wallet usually adds extra security steps. Examples of hot wallets include Coinbase and Electrum. Trezor and Ledger Nano are examples of cold wallets.
• Purchase the cryptocurrency. Deposit traditional currencies into your account to purchase digital money. It's important to note that you don't have to sink all your assets into a cryptocurrency investment. You can buy fractional shares of Bitcoin, for example.
• Keep an eye on your investment. If you plan on holding onto the investment until your child is of age, make sure to keep track of the login credentials and the digital wallet over time.

It's worth noting that investing in cryptocurrency is risky, especially for children. Cryptocurrencies are highly volatile and can fluctuate wildly in value. It's important for parents to communicate these risks to their children and ensure they understand the complexities of the financial world before investing.

Crypto exchange accounts require users to be 18+

While there is no age limit to buy crypto, many cryptocurrency exchanges have a minimum age requirement of 18 years old. For example, Coinbase previously allowed users as young as 13 but changed this in 2017. Other popular exchanges like Paypal and Binance.US also require users to be at least 18. This is a common requirement across all reputable exchanges in the United States.

Since children cannot have their own crypto exchange accounts, there are a few workarounds that can be used. An adult can use their own account to buy and hold crypto, and later sell the assets and gift the money, or gift the crypto, to the child once they are a legal adult. Another option is to buy crypto in an adult account and then transfer it to a hardware wallet to be gifted to the child. However, this method is more advanced and improper use can result in the loss of the crypto assets. The child must be able to keep the physical wallet safe and remember their secret seed phrase (passcode).

Another way to invest in crypto on behalf of a child is to use a specialised custodial account, such as EarlyBird Crypto, which allows adults to set up custodial investment accounts and crypto wallets for children. The money in the account can be used for any purpose once the child becomes a legal adult.

Crypto is volatile and risky

Lack of Intrinsic Value

Cryptocurrencies are digital assets that are not usually backed by a physical commodity or currency. Their value is entirely dependent on market faith. The price of cryptocurrencies follows the laws of supply and demand. As the supply of many cryptocurrencies is predictable or fixed, their price moves according to demand. If people lose faith in a particular cryptocurrency and start selling it off, this can create a vicious cycle of falling prices as other investors follow suit.

Small Market Size

The crypto market is still emerging and developing. At its peak in 2018, the crypto market was valued at $800 billion. This is small compared to the total value of the US stock market ($28 trillion) or the gold market ($7.9 trillion). The small size of the crypto market means that smaller forces can have a larger effect on price. For example, if a group of investors decided to sell $500 million in gold, it would have a minor impact on prices. If the same thing happened with Bitcoin, it could destabilize the entire market and lead to a crash in prices for all digital currencies.

Speculation Drives Prices

Speculation is a major factor in the volatility of the cryptocurrency markets. Rumours, news, announcements, expectations, and investor sentiment all move the market. Investors bet that the price of different cryptocurrencies will go up or down, and buy and sell accordingly. This creates buying and selling pressures in the market, leading to volatility.

Lack of Regulation & Institutional Capital

Cryptocurrencies are not currently regulated by governments, which means market manipulation can occur, and this discourages institutional investment. Once institutional investors enter the market, there is likely to be greater potential for stability, efficiency, and investment. A market that is global, unregulated, and almost instantly responsive to developments or even rumours of developments is prone to significant price swings.

The Technology is Still Under Development

Blockchain and crypto technologies are still emerging and developing. Each new blockchain application or company launch affects the market. Solutions to technological hurdles such as scalability are still being explored, and in the meantime, such hurdles can lead to pressure on crypto prices. On the other hand, breakthroughs in technology can boost the markets.

Volatility and Risk

The volatile nature of cryptocurrencies means that investors could lose some or all of their investment. Crypto is considered a speculative investment, and investors should only invest what they are willing to lose. Regulatory uncertainty also poses a risk, as some cryptocurrencies could be banned or restricted by governments. Scams and hacks are also a risk, and while steps can be taken to secure crypto wallets and accounts, there is a higher risk of fraud than with most other assets.

Crypto scams are common

The report highlights that the primary concern among both parents and children who are familiar with crypto assets is the risk of falling victim to scams, fraud, or people trying to target and steal from children. This is a valid concern, as crypto scams are prevalent. For example, influencers on social media platforms like TikTok and Instagram have been known to promote scammy altcoins to take advantage of their gullible fans. These influencers may host giveaways, claiming to give away free coins to lucky winners, but in reality, they are just trying to bring attention to the crypto they are promoting. In some cases, these influencers have even been involved in pump-and-dump schemes, where they promote a cryptocurrency, causing its price to rise, and then sell their own holdings at a profit, leaving investors with worthless tokens.

Additionally, the unregulated nature of the crypto market makes it ripe for scammers. Scammers may set up fake cryptocurrency websites or mobile apps that look legitimate, tricking people into investing their money. They may also pose as investment opportunities, asking for cryptocurrency wallet information to allow people to take part. As crypto assets are not regulated in the same way as normal financial services, victims of these scams often have limited protection and may not be able to recover their losses.

To protect children from these dangers, it is important for parents to educate themselves and their children about the risks associated with cryptocurrencies and NFTs. Parents should encourage their children to be vigilant and apply a "Should I trust this?" checklist when considering any crypto investment. This includes checking the legitimacy of the URL, being wary of hyped-up trends, and doing thorough research before investing. It is also important to keep credentials private and only download crypto apps from official stores. By taking these precautions, children can reduce the risk of falling victim to crypto scams.

Crypto can be bought as a gift for children

Age Restrictions

While there is no minimum age requirement to own cryptocurrency, many major crypto platforms and exchanges, such as Coinbase and PayPal, require users to be at least 18 years old to set up a digital wallet and trade cryptocurrencies. This means that if you want to gift crypto to a minor, you may need to explore alternative options.

Custodial Accounts

One way to give crypto to a child is by setting up a custodial account. These accounts allow an adult to invest on behalf of a minor. The assets in the account legally belong to the child, but the adult manages the investments until the child reaches the age of majority (usually 18 or 21). EarlyBird is one platform that offers custodial accounts for crypto, along with traditional investments like stocks, bonds, and mutual funds.

Hardware Wallets

Another option is to purchase crypto on behalf of the child and store it on a hardware cryptocurrency wallet, also known as a "cold wallet." Hardware wallets are small, waterproof, and virus-proof USB-like devices that are considered one of the safest ways to store cryptocurrencies. The adult can hold onto the wallet until the child comes of age and then pass it on to them along with the necessary security credentials.

Paper Wallets

A more affordable alternative to hardware wallets is a paper wallet. A paper wallet is simply a piece of paper that includes all the private and public keys or QR codes needed to facilitate crypto transactions. After investing in a crypto coin, you can deposit it into a paper wallet and then physically give the paper to the child. When the child turns 18, they can upload the contents of the paper wallet to a digital wallet or redeem it on an exchange.

Crypto Gift Cards

Several websites sell cryptocurrency gift cards, which can be a convenient way to gift crypto. You can purchase a gift card for a specified amount, and the recipient can redeem it by entering the details on the website. However, it's important to carefully choose a trustworthy website with good reviews to ensure the security of your transaction.

Direct Purchase and Transfer

If you are already a crypto investor, you can purchase crypto through an exchange and then directly transfer it to the child's crypto wallet. This option may be suitable for older children who have already reached the age of majority and have their own crypto accounts.

Financial Literacy

When gifting crypto to children, it's essential to educate them about financial literacy. Teach them about the basics of money management, investing, and blockchain technology. Explain the risks and volatility associated with crypto investments and help them understand how to access, store, and use their crypto gifts safely.

In conclusion, while it is possible to buy crypto as a gift for children, it requires careful consideration of the child's age, financial knowledge, and the most suitable method of gifting. It is also crucial to provide guidance and supervision to ensure a safe and educational experience for the child.

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