Exploring Crypto Investments: Underage Investors And Their Options

There is no minimum age requirement to own cryptocurrency, but many crypto platforms, including traditional brokerage firms, won't allow a minor to buy crypto until they become an adult. Minors can get around this by enlisting the help of a parent or guardian to set up a custodial account or joint account. Alternatively, some apps let kids earn crypto.

If you are a 17-year-old looking to invest in cryptocurrency, it's important to do your research and only invest money you can afford to lose. Crypto is a risky and volatile investment, and you should be aware of the potential for significant losses.

Crypto custodial accounts

In the context of cryptocurrency, a custodial account is an adult-managed investment account that allows a parent or guardian to open an account on behalf of a minor. While the assets in the account legally belong to the child, the account offers a way for parents or families to invest in the child's name.

A custodial account can be opened with a crypto exchange or a custodial wallet provider, which will typically take the form of a mobile or web application. Once the account is set up, the custodian (the parent or guardian) can deposit funds into the account and choose to invest in cryptocurrencies such as Bitcoin or Ethereum, as well as other traditional investment options like exchange-traded funds (ETFs).

It's important to note that while custodial accounts provide a convenient way for minors to invest in cryptocurrencies, the crypto market is highly volatile and unregulated. Therefore, teens should only invest what they or their parents are willing to lose.

When it comes to the security of the crypto assets, custodial accounts function as custodial wallets. In this setup, the third party (the exchange or wallet provider) holds the private keys to the crypto assets on behalf of the user. This means that the third party has full control over the assets and is responsible for managing the wallet keys, signing transactions, and protecting the user's crypto holdings. As a result, users must trust the service provider to securely store their tokens and implement robust security measures to prevent unauthorised access.

While custodial wallets may be considered less secure than non-custodial wallets, they are often preferred due to their convenience and reduced responsibility for the user. With a non-custodial wallet, the user has sole control of their private keys and is solely responsible for safeguarding their crypto assets. Losing access to a non-custodial wallet, such as by forgetting a password or losing the wallet itself, can result in the permanent loss of funds.

Crypto wallets

There are two main types of crypto wallets: hot wallets and cold wallets. Hot wallets are connected to the internet and are often available as a standalone product or as an add-on through popular crypto exchanges. Cold wallets, on the other hand, are not connected to the internet and are typically hardware devices that look like USB sticks.

Hot Wallets

• Coinbase Wallet: Best for beginners, with a user-friendly interface and support for over 100,000 digital assets.
• MetaMask: Best for Ethereum, with an intuitive interface and support for thousands of tokens and decentralized apps.
• Trust Wallet: Best for mobile, supporting a vast range of coins and tokens, and offering a simple and easy-to-use interface.
• Electrum: Best desktop Bitcoin wallet, with extensive security features, high customizability, and fast and easy setup.
• BlueWallet: Best mobile Bitcoin wallet, featuring a modern design, support for both on-chain and lightning transactions, and multi-signature vaults for added security.
• Exodus: Best for desktop, with native support for over 270 cryptocurrencies, compatibility with Trezor hardware wallets, and 24/7 customer support.
• Crypto.com: Best DeFi wallet, offering a variety of decentralized finance tools, an excellent onboarding process, and a strong security framework.
• Zengo: Best MPC wallet, supporting over 120 crypto and NFTs, employing robust security measures, and offering biometric authentication.

Cold Wallets

• KeepKey: Best cold wallet for beginners, with a reasonable price, an easy-to-read digital display, support for over 7,000 crypto assets, and a PIN protection feature.
• Ledger Nano S Plus: Best hardware crypto wallet, with support for a large number of assets, tight security, and trading capabilities through the integrated Ledger Live app.
• SafePal: Best hybrid crypto wallet, offering both software and hardware solutions, supporting over 10,000 crypto assets, and providing a Web3-enabled browser to interact with dApps and trade NFTs.

When choosing a crypto wallet, it's important to consider factors such as security, functionality, cost, and the types of cryptocurrencies supported. Additionally, it's recommended to use a combination of hot and cold wallets for convenience and added security.

Crypto exchange-traded funds

In the US, people of any age can legally invest in cryptocurrencies. However, many US-based crypto exchanges, such as Coinbase, require users to be at least 18 years old. If you are under 18 and want to invest in cryptocurrency, you can do so through a custodial account or an approved crypto app.

Crypto ETFs track the performance of cryptocurrencies in two main ways:

• Spot ETFs: These directly hold and invest in actual cryptocurrencies, building a portfolio that replicates the performance of the digital assets it contains.
• Crypto ETFs Investing in Futures Contracts: These ETFs invest in futures contracts, which are agreements to buy or sell crypto at a preset date and price. As a result, the price of shares in a given cryptocurrency ETF rises and falls in line with crypto futures contract prices.

Advantages of Crypto ETFs:

• Exposure Without Ownership: Crypto ETFs provide exposure to crypto without the additional expenses and risks associated with owning and holding digital assets in a crypto wallet.
• Lowering the Learning Curve: Investing in crypto ETFs is more accessible for average investors as it does not require the same level of technical knowledge as direct crypto investing.
• More Security for Investors: Crypto ETFs are less susceptible to security issues like hacks and fraud, which are common in the crypto world.
• Lower Costs for Investors: Crypto ETFs allow investors to diversify their holdings without the fees and complexities of buying and exchanging tokens on crypto exchanges.

Disadvantages of Crypto ETFs:

• The Risk of Tracking Error: Crypto ETFs may not always accurately duplicate the price moves of the underlying digital tokens, especially for ETFs that depend on futures contracts.
• Higher Fees: Crypto ETFs often have higher expense ratios than other types of ETFs due to active management.
• Lack of Direct Ownership: Investors in crypto ETFs do not own or have direct control over the underlying cryptocurrency.
• Volatility: Crypto ETFs are subject to the dramatic price swings and high volatility of the crypto markets.

Examples of Crypto ETFs:

• Amplify Transformational Data Sharing ETF (BLOK): Invests in companies involved in blockchain technology and cryptocurrency-related businesses.
• Bitwise Crypto Industry Innovators ETF (BITQ): Provides exposure to cryptocurrency mining, exchanges, and other crypto-related services.
• First Trust SkyBridge Crypto Industry and Digital Economy ETF (CRPT): Invests in companies involved in the crypto industry and digital economy.
• Global X Blockchain ETF (BKCH): Invests in companies that are developing or utilizing blockchain technology.
• VanEck Digital Transformation ETF (DAPP): Invests in companies involved in digital assets, blockchain technology, and digital infrastructure.
• Bitwise Bitcoin Strategy Optimum Roll ETF (BITC): A Bitcoin ETF that focuses on Bitcoin futures contracts.
• Hashdex Bitcoin Futures ETF (DEFI): Another Bitcoin ETF that invests in Bitcoin futures.
• ProShares Bitcoin Strategy ETF (BITO): A Bitcoin futures ETF that was the first crypto ETF on US markets.

Alternatives to Crypto ETFs:

If you are seeking alternatives to crypto ETFs, there are several options available:

• Direct Cryptocurrency Investments: You can buy cryptocurrencies directly through crypto exchanges, giving you full control over the digital assets.
• Public Cryptocurrency Companies: You can invest in the individual stocks of companies actively involved in the crypto market.
• Cryptocurrency Mutual Funds: These mutual funds invest in a portfolio of companies involved in the crypto and blockchain industry. Pricing is determined at the end of a trading day, providing more stability than direct crypto investing.
• Cryptocurrency Mining: You can "mine" cryptocurrency directly, but this process is computationally intensive and may not be suitable for average investors.

In summary, while crypto exchange-traded funds offer a convenient way to gain exposure to the crypto market, they come with their own set of advantages and disadvantages. It is important to understand the risks and regulations associated with these investments before making any financial decisions.

Crypto and blockchain-related stocks

In most countries, there are no laws prohibiting minors from investing in cryptocurrencies. However, many crypto exchanges require users to be at least 18 years old. So, if you are 17, you may face barriers to investing in crypto. One way to get around this is to use a custodial account, which is an adult-managed investment account that allows a parent or guardian to open an account on your behalf.

Now, if you are interested in investing in crypto and blockchain-related stocks, here are some options to consider:

Nvidia (NVDA)

Nvidia is a leading manufacturer of graphics processing units (GPUs), which are crucial for artificial intelligence, autonomous vehicles, and gaming. GPUs are also essential for cryptocurrency mining. While sales of Nvidia's crypto-focused CMP chips have slowed due to declining crypto prices, sales could rebound if the market recovers.

Block (SQ)

Formerly known as Square, Block is a financial technology company with two main business components: a payment-processing ecosystem for small businesses and the Cash App personal financial platform. Block has integrated blockchain into its operations, allowing users to buy and sell Bitcoin through the Cash App. The company also has its own team of Bitcoin developers, known as Spiral, and an open-developer platform for blockchain applications called TBD.

IBM (IBM)

IBM has made significant strides in blockchain technology through its acquisition of Red Hat, providing cross-selling opportunities with its enterprise clients. IBM Blockchain has provided transformative solutions for clients such as Home Depot, Renault, and Albertsons.

Mastercard (MA)

Mastercard, a payment processing giant, has recognised the potential of blockchain technology in the cashless payment space, especially for cross-border money transfers. The company has formed partnerships with blockchain technology firms and launched crypto-funded payment cards in collaboration with leading Asia-Pacific cryptocurrency companies.

Amazon (AMZN)

Amazon, known primarily for its e-commerce platform, also offers Amazon Web Services, the leading cloud infrastructure service. Amazon Managed Blockchain, a part of AWS, enables customers to create and manage their blockchain networks. While blockchain currently accounts for a small portion of Amazon's revenue, there is potential for much more as the technology evolves.

Coinbase Holdings (COIN)

Coinbase is the world's largest cryptocurrency exchange, offering a platform for trading over 100 different digital assets. The company has nearly 100 million verified users worldwide and facilitates over $1.2 trillion in annualised cryptocurrency trading volume. While Coinbase's business has been impacted by recent crypto price declines, it could be one of the biggest beneficiaries if the market rebounds.

GlobalX Blockchain ETF (BKCH)

Instead of investing in individual stocks, you can gain exposure to a basket of blockchain stocks through an exchange-traded fund (ETF) like the GlobalX Blockchain ETF. This ETF invests in 25 different companies, including Coinbase, providing a diversified approach to investing in the blockchain space.

Crypto as a future of finance

Crypto as the Future of Finance

Cryptocurrency is virtual money that can be bought, sold, or exchanged on a decentralised, encrypted network called the blockchain. It is not issued or controlled by any government or central bank, and it has no physical existence. While it has been around for a while, with Bitcoin being created in 2009, crypto is still considered a disruptive technology with the potential to transform the financial landscape.

Many Americans believe that crypto is the future of finance, and this belief is bipartisan, with similar numbers of Democrats and Republicans agreeing. Crypto has strong appeal among young people and minorities, and it is seen as a means to create a more equitable economy. This is because it provides financial services to the unbanked and underbanked populations worldwide, empowering people who have been excluded from traditional financial systems. Crypto also enables fast, low-cost, and borderless transactions, reducing the friction and fees associated with traditional cross-border transfers.

The future of money is a complex and evolving topic, and while crypto has gained significant attention and adoption in recent years, there are still some barriers to its widespread acceptance. These include:

• Volatility: Cryptocurrencies are known for their price volatility, which can make them less suitable as a stable unit of account and medium of exchange.
• Scalability: As crypto gains more users, it needs to be able to handle a large number of transactions quickly and efficiently to become a widespread payment system.
• Regulation: Clear and balanced regulations can provide legitimacy and stability to the crypto market, but excessive or inconsistent regulations may impede the use of crypto as money.
• Adoption and acceptance: For crypto to become the dominant form of money, it needs to gain broader acceptance and overcome regulatory challenges, especially from governments and financial institutions.

However, there are also several factors that could drive the increased adoption of crypto in the future:

• Mainstream adoption: Greater awareness, improved user-friendly interfaces, and increased acceptance by businesses and institutions could lead to the integration of crypto into everyday financial transactions, online shopping, and even salary payments.
• Regulation and institutional involvement: As regulatory frameworks become more defined and established, they could pave the way for increased institutional involvement, such as the launch of cryptocurrency exchange-traded funds (ETFs) and the participation of traditional financial institutions.
• Advancements in blockchain technology: Scalability solutions, privacy-enhancing technologies, and interoperability protocols will further expand the possibilities of decentralized applications and smart contracts, making crypto more accessible and user-friendly.
• Central Bank Digital Currencies (CBDCs): The introduction of CBDCs could bridge the gap between traditional financial systems and cryptocurrencies, leading to a more interconnected digital economy.
• Tokenization of assets: The tokenization of various assets, including real estate, intellectual property, and art, has the potential to democratize access to investments and unlock liquidity in traditionally illiquid markets.
• Enhanced user experience and DeFi growth: The user experience of interacting with crypto is expected to improve, making it more accessible to the general public. Additionally, the growth of decentralized finance (DeFi) will offer innovative financial services such as lending and borrowing on decentralized exchanges.

In conclusion, while there are still some challenges and uncertainties surrounding the future of crypto, it has the potential to become the future of finance. It will be interesting to see how this space evolves in the coming years and whether policy-makers and regulators will take the necessary actions to support the continued growth of the crypto industry while protecting the financial futures of citizens.

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