Exploring Crypto: Teenagers And Cryptocurrency Investment

Cryptocurrency is a hot topic for many teenagers, who are eager to jump on the new digital asset growth opportunity. While there are no laws preventing minors from investing in cryptocurrencies, many crypto platforms and exchanges require users to be 18 or over. This means that, in most cases, a 14-year-old will need the help of a parent or guardian to invest in crypto. Some crypto apps allow kids to earn crypto, and there are also crypto wallets designed for children, which are typically set up as custodial accounts with parental oversight.

A 14-year-old can legally invest in cryptocurrency with parental oversight

While there are no laws or regulations preventing minors from investing in cryptocurrencies, many crypto platforms and exchanges require users to be at least 18 years old. This creates a predicament for ambitious teenagers who are legally unable to control their own accounts.

However, a 14-year-old can legally invest in cryptocurrency with the help of a parent or guardian. Adults can set up a crypto investment account and help their children invest. This is typically done through a custodial account, which is an adult-managed investment account that allows a parent or guardian to open an account on behalf of their child. While the assets legally belong to the child, parents or guardians have oversight and control over the account until the child turns 18.

There are a few crypto platforms that cater specifically to teenagers with parental oversight, such as Coinx Teen and EarlyBird. These platforms offer secure custodial accounts that allow teens to invest in cryptocurrencies like Bitcoin and Ethereum.

It's important to note that investing in cryptocurrency is risky and speculative, and teens should only invest what they or their parents are willing to lose. Cryptocurrencies are highly volatile and can fluctuate wildly in value. Additionally, the crypto industry is largely unregulated, and there is a risk of scams, hacks, and fraud.

By investing with parental oversight, teenagers can gain exposure to the world of cryptocurrency and improve their financial literacy, while also having the guidance and protection of an adult.

Crypto exchange-traded funds (ETFs) are a safer way to invest in crypto

While it is not illegal for a 14-year-old to invest in cryptocurrencies, many crypto exchanges require users to be at least 18 years old. For minors, a custodial account can be set up by a parent or guardian, allowing them to invest on behalf of the child.

Exposure Without Ownership

Crypto ETFs provide exposure to crypto without the additional expenses and risks of owning and holding the digital assets in a crypto wallet. For example, there are custody charges for cryptocurrencies, and some secure digital wallets charge an annual fee. These charges can add up quickly. Cryptocurrencies also come with transaction and network fees, which the ETF providers take care of, even if you pay indirectly through the fund's expense ratio.

Lowering the Learning Curve

The jargon and technological complexity of cryptocurrencies can be a roadblock for average investors. Crypto ETFs make it much simpler to get into crypto, as you can trade shares in crypto ETFs from your standard brokerage account.

More Security for Investors

Cryptocurrency exchanges, storage devices, wallets, and some poorly designed blockchains have been hacked since their launch, leading to constant worries about security. A cryptocurrency ETF takes care of security for you.

Lower Costs for Investors

There are over 9,000 cryptocurrencies available in trading markets worldwide as of January 2024. The infrastructure to buy and sell them is still relatively untamed territory compared with securities exchanges. Crypto ETFs allow you to diversify your holdings without the fees and hassles of buying and exchanging tokens yourself.

Regulatory Considerations

The regulatory environment for crypto is rapidly changing, and these changes can significantly impact the performance and availability of crypto ETFs. The U.S. Securities and Exchange Commission (SEC) has long been hesitant to approve crypto ETFs due to concerns about investor protection. The SEC was compelled to approve spot Bitcoin ETFs in early 2024 after a federal appeals court ruling against them.

Diversification

Crypto is a unique asset class, so adding it to a portfolio offers diversification. Crypto ETFs also make it easier to gain exposure to several cryptocurrencies, enabling diversification within the crypto world.

Crypto wallets: Hot wallets are online, cold wallets are offline

In most countries, there are no laws or regulations preventing minors from investing in cryptocurrencies. However, many crypto exchanges require users to be at least 18 years old. For teenagers who want to invest in cryptocurrency, the best option is usually to use a custodial account, which is an adult-managed investment account that allows a parent or guardian to open an account on their behalf.

Now, onto crypto wallets. When you buy cryptocurrency, you'll need a crypto wallet to store it. There are two main types of crypto wallets: hot wallets and cold wallets.

Hot wallets are online wallets connected to the internet. They are more convenient to use, but they are also more vulnerable to hacks. The most popular hot wallet is associated with the Coinbase crypto exchange, which allows you to buy, sell, and store cryptocurrencies on their platform.

Cold wallets, on the other hand, are offline wallets that are not connected to the internet. They are less convenient to use but more secure. The most popular cold wallet is the Ledger Nano S, a hardware wallet that stores your private keys offline. A cold wallet can also be as simple as writing your public and private keys on a piece of paper.

Both hot wallets and cold wallets have their advantages and disadvantages, and many people choose to use a combination of both. For example, you might use a hot wallet for small amounts of cryptocurrency that you want to be able to access and trade easily, while using a cold wallet for larger amounts that you want to store more securely.

Crypto is a volatile asset class

While people of any age can legally invest in cryptocurrency, many crypto exchanges require users to be at least 18 years old. Therefore, if a 14-year-old wants to invest in cryptocurrency, they will need help from a parent or guardian.

Crypto is a relatively new asset class and is widely considered to be volatile. Volatility is a measure of how much the price of an asset has moved up or down over time. Generally, the more volatile an asset is, the riskier it is considered to be as an investment. Crypto's volatility means that it has the potential for significant upward and downward movements over shorter time periods.

The volatility of crypto can be attributed to several factors, including its speculative nature, the influence of news and events, the actions of large holders, and the lack of clear regulation. Crypto is also a highly globalised and decentralised market that trades 24/7, making it susceptible to rapid price movements.

Compared to traditional asset classes, crypto is in a different league when it comes to volatility. Stocks, for example, can range from the relative stability of large-cap stocks (like Apple or Google) to the erratic nature of "penny stocks". Bonds are typically even lower-risk, with less dramatic price movements.

As an example of crypto's volatility, Bitcoin (BTC) has witnessed over eight 50% corrections in its 15 years of existence but has always managed to recover and reach new all-time highs.

Due to its volatility, crypto investing is considered high-risk, and teens shouldn't invest more than they or their parents are willing to lose.

Crypto accounts for minors: Custodial accounts, joint accounts, and apps

Crypto Accounts for Minors

Custodial Accounts

Custodial accounts are opened and managed by an adult on behalf of a minor. The adult is known as the custodian and they make all the financial decisions and manage the account until the minor reaches the age of majority (usually 18). At this point, the minor takes full control of the account and its funds.

Custodial accounts can be opened by parents, grandparents, or other family members and friends. The assets in the account legally belong to the minor.

There are two main types of custodial accounts: the Uniform Gift to Minors Act (UGMA) and the Uniform Transfers to Minors Act (UTMA). The difference between the two is that the UTMA covers more types of assets. UGMA accounts can include assets such as cash, stocks, bonds, and mutual funds, while UTMA accounts can also include real estate, jewellery, and art.

Custodial accounts are available on several platforms, including:

• EarlyBird
• Charles Schwab
• Vanguard
• Acorns
• Ally Bank

Joint Accounts

Joint brokerage accounts are typically co-owned by spouses, but can also be shared by any two people, as long as one of them is an adult. A parent can open a joint brokerage account with their child, giving the minor joint ownership of the account.

Apps

There are several apps that allow minors to buy, sell, or earn cryptocurrencies. These include:

• Step: This app offers a secured credit card for teens, as well as the ability to buy and sell Bitcoin for a flat fee.
• Coinbase: While Coinbase doesn't offer custodial accounts, parents can purchase cryptocurrency and earmark it to give to their child later.
• Crypto.com, Gemini, and Kraken: These exchanges don't offer custodial accounts, but parents can buy crypto for their children through them.

Frequently asked questions