Exploring Crypto Investments As A Minor: What You Need To Know

Investing in cryptocurrency is an appealing prospect for many 17-year-olds, but there are some challenges and risks to be aware of. While there are no laws prohibiting minors from investing in cryptocurrencies, many crypto exchanges require users to be at least 18 years old. This creates a hurdle for minors eager to invest in digital assets like Bitcoin or Ethereum. However, there are ways for 17-year-olds to get involved in the crypto market, such as through custodial accounts or alternative methods of acquiring crypto. It's important to note that crypto investing is high-risk and mostly unregulated, so it's crucial to proceed with caution and only invest what one can afford to lose.

Minors can invest in crypto with the support of their guardians

While many crypto exchanges require users to be 18 or older, there is no rule against minors buying cryptocurrencies with the support and knowledge base of their guardians. In fact, there is no minimum age to use cryptocurrency. However, most regulated crypto apps and exchanges do require users to be at least 18 years old to register.

Crypto Custodial Accounts

One way for minors to get into crypto investing is through a custodial account. This 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 can invest in crypto on their behalf. The child generally won't gain control over the assets until they are over 18 years old.

Crypto Wallets

Minors can also set up their own crypto wallets, as there are no age limits for self-controlled crypto wallets. However, wallets that are part of a regulated crypto exchange are usually restricted to users who are 18 or older. This means that minors will need help from their parents or guardians to set up a wallet and place or withdraw cryptocurrency.

Other Ways for Minors to Buy Crypto

There are several other ways for minors to buy crypto without breaking the law. For example, there are thousands of Bitcoin ATMs worldwide that allow users to buy or sell Bitcoins with cash. However, most ATMs only accept cash, and users may encounter identity checks that prevent minors from buying crypto.

Minors can also receive crypto as payment for part-time work or freelancing in the IT and crypto spheres. They can also receive crypto gift cards, which are digital gift cards containing cryptocurrency instead of fiat currency.

Crypto exchange-traded funds (ETFs)

Crypto ETFs are funds that track the price of a select individual cryptocurrency or a group of cryptocurrencies. They are generally low-cost, more diversified, and do not require investors to understand how crypto self-custody works, making them a simpler way of gaining exposure to the crypto market. Crypto ETFs trade on regular stock exchanges, and investors can hold them in their standard brokerage accounts.

Crypto ETFs can be categorised into two types:

• Spot ETFs: These ETFs invest directly in cryptocurrencies, building a portfolio that replicates the performance of the digital assets it contains. They face greater regulatory hurdles due to Securities and Exchange Commission (SEC) concerns about investor risk.
• Futures ETFs: These ETFs invest in futures contracts, which are agreements to buy or sell crypto at a preset date and price. The price of shares in a cryptocurrency futures ETF rises and falls in line with crypto futures contract prices.

• IShares Bitcoin Trust (IBIT)
• Bitwise Bitcoin ETF (BITB)
• Grayscale Bitcoin Trust ETF (GBTC)
• VanEck Ethereum Strategy ETF (EFUT)
• Global X Blockchain ETF (BKCH)
• Amplify Transformational Data Sharing ETF (BLOK)
• ProShares Ultra Bitcoin ETF (BITU)

While crypto ETFs provide a convenient way to gain exposure to the crypto market, they also come with certain drawbacks. Some of the disadvantages of investing in crypto ETFs include:

• Higher fees compared to other ETFs
• Lack of direct ownership of the underlying cryptocurrency
• Regulatory uncertainty
• Elevated risk due to volatility in the crypto markets

It is important to carefully consider the risks and rewards before investing in crypto ETFs or any other financial product. Consulting a financial advisor can help individuals make informed decisions about their specific circumstances and goals.

Crypto-related stocks

While there are no laws preventing minors from investing in cryptocurrencies, many U.S.-based crypto exchanges require users to be at least 18 years old. This means that teens wishing to invest in crypto face barriers to entry. One way to get around this is to set up a custodial account, an adult-managed investment account that allows a parent or guardian to open an account on behalf of a child.

For those who are 18 or older and looking to invest in crypto-related stocks, here are some options:

• PayPal Holdings, Inc. (PYPL): PayPal is a leading technology platform that facilitates digital and mobile payments for consumers and merchants. It operates its own digital wallets and allows users to buy, transfer, and sell cryptocurrencies, including Bitcoin, Ethereum, Bitcoin Cash (BCH), and Litecoin (LTC). PayPal's mobile wallet, Venmo, also allows users to buy and sell cryptocurrency.
• Interactive Brokers Group Inc (IBKR): Interactive Brokers Group is an international brokerage that electronically trades stocks, options, futures, and more. It offers customers the opportunity to trade cryptocurrency futures through its commodities futures trading desk.
• SoFi Technologies Inc (SOFI): SoFi Technologies is a financial services company offering a range of products, including a secure platform for trading cryptocurrencies. It provides private loans, mortgages, credit cards, banking, and insurance services.
• Marathon Digital (MARA): Marathon Digital is a digital asset technology company and one of the largest and most valuable pure-play Bitcoin mining stocks. It has a fleet of over 105,000 Bitcoin miners and held approximately 11,466 Bitcoins, worth about $326 million, in the first quarter of 2023.
• Block (SQ): Block, formerly known as Square, is an online digital and mobile payment platform and the parent company of Cash App. It allows users to buy, sell, send, and receive Bitcoin. Block also offers a decentralized platform, tbd, which enables developers to build decentralised finance (DeFi) applications on programmable blockchains.
• Advanced Micro Devices (AMD): AMD is a semiconductor stock that offers exposure to the cryptocurrency market.
• Coinbase Global (COIN): Coinbase is a cryptocurrency exchange platform that allows users to buy, sell, and trade various cryptocurrencies.

Crypto wallets

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, in practice, there are barriers to entry for those under 18 who want to invest in crypto.

If a minor wants to invest in cryptocurrency, they will need the support of a guardian. Minors can also obtain crypto without age verification through means such as Bitcoin ATMs, peer-to-peer exchanges, decentralised exchanges, or receiving crypto as payment for work or freelancing.

When buying cryptocurrency, it needs to be stored in a crypto wallet. A crypto wallet is a tool for storing your private key, which gives you access to your crypto. Crypto wallets also allow you to send, receive, and spend cryptocurrencies.

There are several types of crypto wallets, including:

• Paper wallets: Keys are written on a physical medium like paper and stored in a safe place. This makes using your crypto more difficult as it can only be used online.
• Hardware wallets: Keys are stored on a thumb drive or USB device that is kept in a safe place and only connected to a computer when you want to use your crypto.
• Online wallets: Keys are stored in an app or other software. Look for one that is protected by two-step encryption.

When choosing a crypto wallet, it is important to consider factors such as security, functionality, and cost. Some popular options for crypto wallets include Coinbase Wallet, MetaMask, TrustWallet, and Ledger Nano S Plus.

Crypto custodial accounts

While there are no laws preventing minors from investing in cryptocurrencies, many US-based crypto exchanges require users to be at least 18 years old. This poses a barrier to entry for minors who want to invest in crypto. However, there is a way around this: crypto custodial accounts.

A crypto custodial account is an adult-managed investment account that allows a parent or guardian to open an account on behalf of a child. While the assets legally belong to the child, the parent or guardian has control over the private keys that control the cryptocurrency. This means that the parent or guardian is responsible for safeguarding the child's crypto assets and managing the wallet key, signing transactions, and protecting the child's investments.

One of the first custodial accounts to offer crypto investing is EarlyBird. With this account, parents can deposit funds into their child's account and choose to invest in Bitcoin or Ethereum, as well as exchange-traded funds (ETFs) and other traditional investments. Other crypto apps, like Step, offer a simple way for teens to buy and sell Bitcoin with a flat fee, but they also require an adult sponsor to open an account for a minor.

While custodial accounts may be seen as less secure than non-custodial accounts, they are often preferred by parents and guardians because they don't require as much responsibility and are usually more convenient. With a custodial account, there is less risk of losing the private keys or forgetting the password, as the account holder can reset it if necessary. However, it's crucial to use a reputable custodial wallet, such as those offered by major US crypto exchanges, where the majority of customer funds are kept in cold storage hardware wallets and are highly secure.

In conclusion, crypto custodial accounts offer a way for minors to invest in cryptocurrencies while still having the guidance and oversight of a parent or guardian. It's important to remember that crypto investing is high-risk and mostly unregulated, so teens shouldn't invest more than they or their parents are willing to lose.

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