Exploring Crypto Investments: Teenagers And Their Options

There is no minimum age requirement to own cryptocurrency, and people of any age can legally invest in it. However, many crypto platforms, including traditional brokerage firms, won't allow minors to buy crypto until they become adults. This means that a 14-year-old would need the help of a parent or guardian to invest in crypto.

Crypto accounts for minors

There is no minimum age requirement to own 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 to enlist the help of a parent or guardian.

Joint Brokerage Account With Crypto

A joint brokerage account is co-owned by two people, with at least one being an adult. A parent can open a joint brokerage account with their child, allowing the minor to have equal rights and say in the investments. A multi-signature cryptocurrency wallet might be a good fit for those who want joint ownership.

Premium Custodial Account With Crypto

Custodial accounts are owned by adults, who make the investment decisions, but the assets belong to the beneficiaries (minors) and are transferred to them once they reach the age of majority. Custodial accounts can hold major cryptocurrencies, including Bitcoin and Ethereum.

Crypto Wallets

A cryptocurrency wallet is a digital wallet that stores your public and private keys and interacts with different blockchains. There are two types of wallets: hot wallets, which are online and convenient but vulnerable to hacks, and cold wallets, which are offline, less convenient, and more secure.

Crypto Exchange-Traded Funds (ETFs)

Crypto ETFs trade like stocks and are subject to strong regulations. They are protected by the Securities Investor Protection Corporation (SIPC) if the platform goes bankrupt, but not for making bad investment decisions. Examples of crypto ETFs include Grayscale Bitcoin Trust ETF (GBTC) and iShares Bitcoin Trust (IBIT).

Crypto-Related Stocks

Teens can indirectly invest in crypto by investing in individual companies related to blockchain technology or cryptocurrency. For example, Coinbase Global Inc. (stock symbol: COIN) is one of the biggest crypto exchanges. Crypto-related stocks can be purchased through custodial accounts set up by parents or other adults.

Crypto as a long-term investment for kids

There is no minimum age requirement to own cryptocurrencies. However, most major crypto platforms, including traditional brokerage firms, won't let a minor buy crypto without parental assistance. A parent or guardian can help their child set up a crypto investment account and help them invest in cryptocurrencies.

From a diversification perspective, crypto might be an excellent long-term investment to add to a child's portfolio. Investing in crypto is risky, so it should be part of a well-rounded portfolio—most experts recommend allocating no more than 5%.

Many people believe blockchain technology is the future of money. While crypto has been volatile in the past, the top coins have performed better than other investments over the long term.

When kids invest in crypto, they can improve their financial literacy and invest for their future. They can also learn about blockchain technology, depending on their age.

Once children have mastered basic money management concepts, such as saving in a piggy bank, they may enjoy buying crypto to learn about financial markets. They can see how an investment grows or shrinks and better understand the concept of risk and reward.

Additionally, given a child's long investment horizon, if they own crypto now, it might grow significantly by the time they need it for expenses.

How to Open a Crypto Account for a Minor

A parent can open a custodial account, joint account, or another type of account that allows the child to earn crypto without directly buying it. Minors cannot buy, sell, or trade securities. But a parent or custodian can buy crypto on their behalf or let them earn crypto without purchase.

• Custodial accounts: These accounts typically hold the same securities as a traditional brokerage account, such as stocks or mutual funds. Uniform Transfers to Minors Act (UTMA) accounts can also hold real estate and other investments, including cryptocurrencies like Bitcoin and Ethereum. Adults make investment decisions, but the assets belong to the beneficiaries and are transferred to them when they reach the age of majority.
• Joint brokerage accounts: A parent can open a joint brokerage account with their child. Both owners have equal rights and say in which investments to buy. A multi-signature cryptocurrency wallet might be suitable for joint ownership.
• Crypto apps for kids: Some apps, like EarlyBird and Step, offer crypto wallets for children through custodial accounts or allow them to earn crypto through activities like walking.

Risks of Investing in Cryptocurrency

Cryptocurrency is a risky investment, and its value can swing wildly. For example, Bitcoin's value declined by about 70% between November 2021 and September 2022. Additionally, several major crypto platforms and investors have filed for bankruptcy, leaving millions of customers without access to their deposits.

Therefore, crypto investing may be a gamble unless you know what you're doing and can afford to lose money.

If teens are interested in investing in crypto, they should consider starting with a small fraction of Bitcoin or Ethereum, investing no more than $300-$500 if they have the funds.

Final Thoughts

While crypto can be a risky investment, it offers a way for kids to improve their financial literacy and learn about new technologies. With the help of parents or guardians, minors can start investing in crypto and gain exposure to this innovative and rapidly growing market.

Why invest in crypto for kids?

Investing in crypto for kids can be a great way to get them interested in financial literacy and set them up for future success. Here are some reasons why investing in crypto for kids can be beneficial:

Financial Literacy and Education

Crypto is pushing the boundaries of technology and investment, and it can be a great opportunity to teach kids about financial literacy early on. By introducing them to the world of crypto, you can explain complex financial concepts, the importance of investing, and how the market works. This knowledge will serve them well as they grow older and start making their own financial decisions.

Long-Term Investment Potential

Crypto has shown explosive growth and opportunities. The total market capitalization of the crypto sector has surpassed $2 trillion, and the value of a single Bitcoin is now over $44,000. While there are volatile cryptocurrencies, some have shown tremendous growth over the years. By investing a small amount regularly, kids can benefit from the power of compounding over time. For example, a child investing $50 every month can accumulate over $750,000 in 60 years with an 8% interest rate.

Early Adoption and Technological Advancements

Crypto is a relatively new asset class, and its popularity is growing, especially among younger generations. By investing in crypto for kids, you are helping them adopt new technologies early on. Crypto is built on blockchain technology, which offers enhanced security, decentralization, and transparency. This technology is likely to play a significant role in the future of finance and other industries.

Diversification and Portfolio Balancing

Adding crypto to a child's investment portfolio can provide diversification benefits. By combining crypto with traditional investments like stocks, bonds, and mutual funds, you can balance the overall risk of the portfolio. Crypto's volatile nature can be offset by the more stable performance of other assets. Additionally, the long-term horizon often associated with children's investments can help smooth out the short-term volatility of crypto assets.

Ease of Access and Gift-Giving

While children cannot directly buy cryptocurrencies on their own due to age restrictions, adults can invest in crypto on their behalf. You can set up a custodial account or a specialized app that allows you to invest in crypto for a child. These accounts give you the flexibility to contribute funds and build a diversified portfolio, including crypto, stocks, ETFs, and bonds. This way, you can give the gift of financial security and teach them about investing at an early age.

How to open a crypto account for a child

There is no minimum age requirement to own 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 to do so with the help of a parent or guardian.

Adults can help children set up a crypto investment account and help them invest money in cryptocurrencies. This can be done by opening a custodial account, joint account, or another type of account that allows the child to earn crypto without directly buying it.

A custodial account is opened and managed by a person over the age of 18 on behalf of a minor. The assets in the account are legally owned by the child, but the adult runs the account. Once the child reaches adulthood, they become the legal owner and custodian of the account.

A joint account is co-owned by two people, one of whom must be an adult. Both owners have an equal say in which investments to buy.

Cryptocurrencies are among the riskiest investment options currently available, and they are often made more dangerous by day trading practices that try to profit from volatility for immediate gains. Mishandling blockchain, excessive volatility, and the lack of strict crypto regulations are all risks related to cryptocurrencies.

Giving your child a crypto education provides them with a head start in understanding how it works and teaches them about risk management. They can also learn firsthand how to make sensible investments, build portfolios, balance risk and return, and stay away from financial frauds. It might also give your child a chance at a stable financial future.

Although there aren't any age limitations for bitcoin, most big exchanges have Know Your Customer (KYC) regulations to ensure that customers are at least 18 years old. KYC regulations require customers to confirm their identity when opening an account, which can be challenging for minors.

Children cannot purchase cryptocurrency on their own, but they can do so with a parent or other adult's assistance. Parents can open a minor's custodial account, allowing them to save money for their children's future.

Crypto exchange-traded funds

Crypto ETFs are a type of investment fund that tracks the price performance of cryptocurrencies. They allow investors to gain exposure to the crypto market without directly owning or managing digital assets, which can be challenging to maintain. Crypto ETFs trade on regular stock exchanges, and investors can hold them in standard brokerage accounts.

Crypto ETFs work by investing in a portfolio linked to cryptocurrency instruments. There are two main types of crypto ETFs: spot ETFs and futures ETFs. Spot ETFs invest directly in cryptocurrencies, tracking their current value. Futures ETFs, on the other hand, track the prospective value of cryptocurrencies using futures contracts, which are agreements to buy or sell crypto at a preset date and price.

The first crypto ETF, the ProShares Bitcoin Strategy ETF, started trading in October 2021. This ETF tracks bitcoin futures prices. In January 2024, the Securities and Exchange Commission (SEC) approved the first 11 spot crypto ETFs for the US market. These ETFs provide a more direct exposure to cryptocurrency market movements.

Advantages of Crypto ETFs

• Exposure without ownership: Investors can gain exposure to cryptocurrencies without the need to directly own, manage, or secure digital assets themselves.
• Simplified investment process: Crypto ETFs can be bought and sold through traditional brokerage accounts, improving accessibility for average investors.
• Liquidity benefits: ETFs are traded on public stock exchanges and can offer more liquidity than directly holding cryptocurrencies.
• Accessibility in retirement accounts: Crypto ETFs can potentially be included in traditional retirement accounts such as 401(k)s and IRAs, which might not be possible with direct cryptocurrency holdings.
• Regulated investment vehicle: Crypto ETFs traded on public stock exchanges are regulated financial products, offering legitimacy and security for investors.

Disadvantages of Crypto ETFs

• Lack of direct ownership: Investors in crypto ETFs do not own the underlying digital assets directly, especially in the case of crypto futures ETFs.
• Restricted trading hours: Major public stock exchanges are not open 24/7, unlike cryptocurrency exchanges.
• Market volatility: Crypto ETFs are subject to the high volatility of the cryptocurrency markets, in addition to the lower volatility typically associated with ETFs.

Alternatives to Crypto ETFs

• Direct cryptocurrency investments: Investors can still buy cryptocurrencies directly through cryptocurrency exchanges, giving them full control over the digital assets.
• Public cryptocurrency companies: Investors can buy the individual stocks of companies active in the cryptocurrency market.
• Cryptocurrency mutual funds: These mutual funds invest in a portfolio of companies involved in the cryptocurrency and blockchain industry. Pricing is determined at the end of a trading day, providing more stability than direct cryptocurrency investments.
• Cryptocurrency mining: Investors can "mine" cryptocurrency directly, although this process can be computationally intensive and may not be suitable for average investors.

Frequently asked questions