Exploring Crypto Investments: Underage Investors' Options

Investing in cryptocurrencies is an enticing prospect for teenagers, as it represents a radical shift from how older generations invest. However, the question of whether minors can legally invest in crypto is complex and varies depending on the platform and the country. While there is no legal age restriction on investing in cryptocurrencies, many popular crypto exchanges have age restrictions and require users to be 18 or older. This is due to the Know Your Customer (KYC) identity checks these platforms perform. Nevertheless, there are alternative exchanges that do not require KYC verification, allowing minors to purchase crypto anonymously. It is important to note that investing in cryptocurrencies is risky, and minors should discuss any investment decisions with their parents or legal guardians.

Crypto for kids: How to open a crypto account for minors

There is no minimum age requirement to own or invest in cryptocurrency. However, most major crypto platforms, including traditional brokerage firms, won't let a child buy crypto until they become an adult. Therefore, if a minor wants to invest in the crypto space, they will need the help of a parent or guardian.

A minor can open a crypto account if it's a custodial account, joint account, or another type of account that allows the child to earn crypto without directly buying it. For example, a parent can open a joint brokerage account with their child, with the minor on the account title jointly with the parent.

EarlyBird is a popular choice for opening a custodial account for minors. It offers crypto wallets for Ethereum and Bitcoin, and currently gives $25 when you open your wallet to invest in either of these cryptocurrencies. UNest is another platform that offers custodial accounts for minors.

Yes, minors can obtain crypto from locations other than a major exchange. For example, the minor might use an app that lets them earn crypto, such as Step, which allows children aged 13 and older to buy and sell Bitcoin for a small transaction fee. Minors can also receive crypto as a gift from their parents or other adults.

As with any investment, there are risks involved when investing in crypto. Cryptocurrency is extremely volatile, and its value can swing wildly. For example, the value of Bitcoin declined by about 70% between November 2021 and September 2022. Therefore, crypto investing for minors should be approached with caution and only undertaken with money that can be afford to be lost.

Investing in crypto can help minors improve their financial literacy and learn about how financial markets work. Given their long time horizon for investments, crypto can also be a good long-term investment for minors, with the potential for substantial growth by the time they need the funds.

Crypto exchange-traded funds for teens

While there are no laws prohibiting minors from investing in cryptocurrencies, many exchanges impose age restrictions and require ID verification, preventing those under 18 from registering, purchasing, or trading. However, there are alternative exchanges that do not require Know Your Customer (KYC) verification, allowing minors to buy cryptocurrencies anonymously.

• Understand the risks: Crypto investing is high-risk and mostly unregulated. Teens should only invest what they or their parents are willing to lose.
• Educate yourself: Learn about the basics of cryptocurrencies, the blockchain, crypto wallets, and the risks and benefits of investing.
• Seek parental involvement: Adults typically need to establish custodial accounts for minors. They can manage the purchasing of assets, but the teen won't gain control until they are over 18. Involving your parents can help you navigate the complexities of crypto investing safely.
• Choose a suitable exchange: Some popular exchanges like Coinbase, Binance, and Kraken do not allow users under 18. Alternatives such as Bybit, MEXC, Kine, KuCoin, Margex, and Weex do not require ID verification, but be sure to research the features, benefits, and risks of each platform.
• Consider a crypto wallet: Crypto wallets store your public and private keys and allow you to interact with different blockchains. There are hot wallets, which are online and convenient but vulnerable to hacks, and cold wallets, which are offline and more secure but less convenient.
• Explore crypto ETFs: Crypto ETFs trade like stocks, and there are strong regulations around the companies that offer them. Your investments are also protected by the Securities Investor Protection Corporation (SIPC) if the platform goes bankrupt. Some prominent crypto ETFs include Grayscale Bitcoin Trust ETF (GBTC), iShares Bitcoin Trust (IBIT), Bitwise Bitcoin ETF (BITB), and ARK 21Shares Bitcoin ETF (ARKB).
• Monitor and manage your investments: Stay informed about the latest developments in the crypto market and adjust your investment strategies as needed. Remember that crypto values can fluctuate wildly, so be prepared for potential losses as well as gains.

How much crypto should teens invest?

While there are no laws prohibiting minors from investing in cryptocurrencies, many US-based crypto exchanges require users to be at least 18 years old. This means that teens interested in investing in crypto will likely need to do so through a custodial account, with an adult or guardian managing the account on their behalf.

If you are a teenager looking to invest in crypto, it is essential to recognise that it is a highly volatile and speculative investment. Therefore, it is recommended that you only invest a small amount of money—something in the range of $300 to $500, if you can afford it. This aligns with the general advice that you should never invest more than you are willing to lose.

Brian Kelly, founder and CEO of BKCM, LLC, suggests that investors allocate 5% or less of their total investment portfolio to crypto. This approach ensures that you avoid extreme losses if cryptocurrencies turn out to be an unsuccessful investment, while still allowing you to benefit significantly if they grow exponentially.

Jack Kosakowski reinforces this sentiment, emphasising that it is crucial to manage your position size and risk effectively. He cautions against the temptation to invest too much, driven by the desire to get rich quick. Sam Bankman-Fried, CEO and co-founder of FTX Group, advises never to put more money into crypto than you can comfortably afford to lose, especially given the high volatility and your limited understanding of this new asset class.

To start investing in crypto, you can open a few different accounts with small amounts for testing purposes, as suggested by Bankman-Fried. This will allow you to familiarise yourself with the features and mechanics of holding different assets, buying and selling, and transacting on a blockchain.

In summary, while teens can legally invest in cryptocurrencies, it is crucial to approach this speculative market with caution. Start with a small investment that you can afford to lose, and gradually increase your allocation as you gain a deeper understanding of the market and improve your risk management skills.

Crypto wallets for under 18s

Overview

The world of cryptocurrency is fascinating to many young people, and it's understandable that minors would want to explore this exciting, innovative, and fast-evolving space. While there is no minimum age requirement to own crypto, most major platforms will not allow minors to sign up and trade independently. So, if you're under 18 and interested in cryptocurrencies, your best option is to involve your parents or guardians. They can help you set up a crypto wallet and even contribute funds to it.

Crypto Wallets for Minors

• Custodial accounts: These accounts are owned by parents or guardians, who can buy and hold cryptocurrencies on behalf of their children. The assets in the account legally belong to the child, and once they reach the age of majority, the account is transferred to them. Examples of platforms that offer custodial accounts include EarlyBird and UNest.
• Joint brokerage accounts: A parent or guardian can open a joint brokerage account with their child, allowing them to co-own the account and make investment decisions together. A multi-signature cryptocurrency wallet, which requires the signatures of both owners to authorise transactions, is a good option for joint accounts.
• Crypto apps: There are crypto apps designed specifically for kids and teens, such as Step, which offers a unique "hybrid" secured credit card that functions like a Visa credit card. The Step app also has an "invest" function that allows teens aged 13 and older to buy and sell Bitcoin for a small transaction fee.
• Decentralized exchanges (DEXs): Minors can use DEXs, such as Bisq, HodlHodl, and Localcryptos, to buy and sell cryptocurrencies anonymously without the need for identity verification. However, it's important to exercise caution and conduct thorough research before using these platforms.
• Bitcoin ATMs: There are over 4,000 Bitcoin ATMs globally, and minors can use these to buy and sell Bitcoin without verifying their identity unless they exceed a certain transaction threshold.
• Gift cards: Minors can purchase gift cards (e.g., iTunes, Amazon, Google Play) and then exchange them for Bitcoin on platforms like Paxful. This method allows them to acquire cryptocurrency without providing any personal information or verifying their age.

Precautions and Considerations

When venturing into the world of cryptocurrency as a minor, it's essential to keep the following in mind:

• Discuss with your parents or guardians: If you're under 18, it's important to involve your parents or guardians in any investment decisions. Ensure that you have their support and guidance throughout the process.
• Educate yourself: Take the time to learn about cryptocurrencies, blockchain technology, and the potential risks and rewards of investing. Understanding the market and the underlying technology will help you make more informed decisions.
• Don't invest more than you can afford to lose: Cryptocurrencies are highly volatile, and the value of your investments can fluctuate significantly. Only invest what you are comfortable losing, and don't put your financial future at risk.
• Be cautious of scams and fraud: The decentralised and anonymous nature of cryptocurrency transactions can make it easier for scammers to operate. Always exercise caution when choosing a platform, and be wary of offers that seem too good to be true.

How to buy crypto anonymously as a minor

While there are no laws prohibiting minors from buying cryptocurrencies, many exchanges have their own policies that prevent individuals under 18 from registering, purchasing, or trading. However, there are alternative ways for minors to explore the world of crypto. Here's a step-by-step guide on how to buy crypto anonymously as a minor:

Step 1: Understanding the Basics

Before diving into the process, it's crucial for minors to understand the basics of cryptocurrencies, the blockchain technology underpinning them, and the potential risks involved. Cryptocurrencies are highly volatile, and their value can fluctuate significantly. It's important to remember that crypto investments are not protected like traditional stock investments, so caution is advised.

Step 2: Parental Involvement

Minors should involve their parents or legal guardians in their crypto journey. While minors can legally own cryptocurrencies, parental involvement is often necessary for purchasing and managing crypto assets. This involvement can include helping minors create their first crypto portfolio, investing in educational resources, or even buying crypto gifts for them.

Step 3: Choosing a Suitable Exchange

The next step is to select a cryptocurrency exchange that doesn't require identity verification or has more flexible age restrictions. Examples of such exchanges include Bybit, MEXC, Kine, KuCoin, Margex, and Weex. These platforms offer various payment options and low trading fees, making them ideal for minors looking to enter the crypto market.

Step 4: Creating a Crypto Wallet

To store and manage their crypto assets, minors will need to create a crypto wallet. They should opt for a decentralized wallet, as these don't require KYC verification. Examples include MetaMask, Trust Wallet, and Atomic Wallet. Alternatively, minors can purchase a hardware wallet, such as Trezor or Ledger, which offers enhanced security.

Step 5: Buying Cryptocurrency

Once the wallet is set up, minors can start buying cryptocurrencies. They can use their chosen exchange to purchase popular coins like Bitcoin or Ethereum. It's important to remember that some exchanges might have restrictions on the amount of crypto that can be purchased without verification.

Step 6: Security and Anonymity Measures

To enhance their anonymity and security, minors can consider using a VPN, Tor, or a similar privacy-focused tool when accessing crypto exchanges or wallets. Additionally, they should create complex passwords, enable two-factor authentication, and avoid reusing addresses for transactions. These measures will help protect their identity and crypto assets.

Step 7: Exploring Other Options

Minors can also explore alternative ways to acquire cryptocurrencies. For example, they can use Bitcoin ATMs, which allow for anonymous cash purchases of Bitcoin. They can also consider peer-to-peer exchanges, decentralized exchanges, or even receiving crypto payments for part-time work or freelancing in the IT and crypto fields.

In conclusion, while the process of buying crypto anonymously as a minor has its challenges, it is achievable by following the steps outlined above. Remember, it's important to conduct thorough research, understand the risks involved, and always prioritize security when dealing with cryptocurrencies.

Frequently asked questions