Exploring Crypto: A Guide For Teen Investors

There is no age requirement for investing in cryptocurrencies, but many platforms require users to be 18 or older. So, if you're 16, you may need an adult's help to set up an account and guide you through the process of trading and acquiring crypto.

There are several ways for 16-year-olds to buy crypto, such as through a joint brokerage account with a parent or guardian, a custodial account, or a decentralised exchange. It's important to note that investing in crypto is risky, so it's recommended that teens only invest what they or their parents are willing to lose.

Crypto Custodial Accounts

For example, EarlyBird is one of the first custodial accounts to offer crypto investing. You can deposit funds into your child's EarlyBird account and then choose to invest in Bitcoin or Ethereum from within the account. EarlyBird also supports investing in exchange-traded funds (ETFs) and other traditional investment options.

Other crypto apps, like Step, offer a simple way to buy and sell Bitcoin for a flat fee. Step also offers a secured credit card for teens and a finance app that lets your kids buy and sell Bitcoin within the app. However, Step requires an adult sponsor to open an account for a minor.

Custodial accounts are a good option for teenagers interested in investing in cryptocurrencies, as most crypto exchanges require users to be at least 18 years old. While there are no laws prohibiting minors from investing in cryptocurrencies, the lack of age verification makes it difficult for minors to buy cryptocurrencies on their own.

It is important to note that crypto investing is high-risk and mostly unregulated, so teens should not invest more than they or their parents are willing to lose.

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. They make it easy to execute crypto transactions but are more vulnerable to hackers. Examples of hot wallets include the Coinbase Wallet, MetaMask, and TrustWallet.

Cold wallets, on the other hand, are not connected to the internet and are designed to store your digital keys offline, either on a hardware device or a sheet of paper. They are more secure than hot wallets but are less convenient as transactions take longer, and they are nearly impossible to recover if the private keys are lost. Examples of cold wallets include Ledger, Ellipal Titan, and SafePal.

When choosing a crypto wallet, it is important to consider factors such as security, supported currencies, accessibility, customer support, and hardware wallet compatibility. It is also crucial to remember that crypto investing is risky, and one should never invest more than they are willing to lose.

Crypto Exchange-Traded Funds

Crypto ETFs are a type of investment fund that tracks the price performance of cryptocurrencies. They are a convenient way to gain exposure to the crypto market without directly buying, owning, and storing digital assets. Crypto ETFs trade on regular stock exchanges, and investors can hold them in standard brokerage accounts.

Here's how they work:

• Spot ETFs: These ETFs directly invest in and hold actual cryptocurrencies. They track the real-time or "spot" price of a cryptocurrency, such as Bitcoin. This provides a more direct exposure to the market movements of that cryptocurrency.
• Futures ETFs: Crypto ETFs may also invest in futures contracts, which are agreements to buy or sell crypto at a preset date and price. These ETFs track the prospective value of a cryptocurrency through these futures contracts.

Advantages of Crypto ETFs:

• Exposure Without Ownership: Crypto ETFs allow investors to gain exposure to cryptocurrencies without the additional expenses and risks associated with direct ownership. There are no custody charges, and transaction and network fees are taken care of by the ETF providers.
• Simplified Investment Process: Crypto ETFs can be bought and sold through traditional brokerage accounts, making it more accessible for average investors who are unfamiliar with crypto exchanges.
• Liquidity Benefits: ETFs are traded on public stock exchanges and typically offer better liquidity than directly holding cryptocurrencies, making it easier to buy and sell.
• Accessibility in Retirement Accounts: Crypto ETFs can potentially be included in traditional retirement accounts like 401(k)s and IRAs, which might not be possible with direct crypto holdings.
• Regulated Investment Vehicle: Crypto ETFs traded on public stock exchanges are regulated financial products, offering legitimacy and security to 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 have specific trading hours, unlike the 24/7 operation of crypto exchanges.
• Market Volatility: Crypto ETFs are subject to the high volatility of the crypto markets, in addition to the usual risks associated with stock markets.
• Tracking Errors: Crypto ETFs may not always accurately duplicate the price moves of the underlying digital token, 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.

Examples of Crypto ETFs:

• ProShares Bitcoin Strategy ETF: This was the first and largest U.S. cryptocurrency futures ETF, starting trading in October 2021. It tracks Bitcoin futures prices.
• Amplify Transformational Data Sharing ETF (BLOK): This ETF 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 the digital economy.
• Global X Blockchain ETF (BKCH): Invests in companies that are developing or utilizing blockchain technology.

Investing in Crypto as a Minor:

While there are no laws prohibiting minors from investing in cryptocurrencies, many crypto exchanges require users to be at least 18 years old. However, there are alternative ways for teenagers to invest in crypto:

• Custodial Accounts: These are adult-managed investment accounts where a parent or guardian opens an account on behalf of a child. The assets legally belong to the child, but the adult has control over the account. Examples include EarlyBird, which offers crypto investing and supports investing in ETFs.
• Decentralized Exchanges: These exchanges are unregulated and have no age limits. However, they are risky and do not allow the exchange of fiat currency (like USD) for crypto.
• Peer-to-Peer Exchanges: P2P platforms have fewer restrictions and allow direct crypto transactions between investors without a centralized third party.
• Bitcoin ATMs: There are over 14,000 Bitcoin ATMs worldwide, allowing users to buy or sell Bitcoin with cash. Some also accept credit and debit cards.

Crypto Apps

While there are no laws prohibiting minors from investing in cryptocurrencies, many US-based crypto exchanges and apps require users to be at least 18 years old. However, there are some crypto apps that allow teens to invest with parental involvement. Here are some of the apps that teens can use to explore the world of cryptocurrencies:

• EarlyBird: This app is one of the first custodial accounts to offer crypto investing. Parents or guardians can deposit funds into their child's account and choose to invest in Bitcoin or Ethereum. EarlyBird also offers the option to invest in exchange-traded funds (ETFs) and other traditional investments.
• Step: This app provides a simple way for teens to buy and sell Bitcoin for a flat fee. It also offers a secured credit card for teens. A minor will need an adult sponsor to open an account.
• Guarda Wallet: Guarda is a platform that supports a wide range of cryptocurrencies. It allows users to create a cryptocurrency wallet and buy, sell, and store various crypto coins. However, it is important to note that the platform does not store your personal data and passwords, so users must securely store this information themselves.

It is important to remember that crypto investing is high-risk and mostly unregulated. Therefore, teens should only invest what they or their parents are willing to lose. Additionally, it is recommended to use a cold wallet, also known as an offline wallet, to store cryptocurrencies, as it is more secure than an online hot wallet.

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. If you are a 16-year-old interested in investing in cryptocurrencies, you can do so with the help of your parents or guardians.

Now, if you are looking to invest in crypto-related stocks, here are some options for you:

• PayPal Holdings, Inc. (PYPL): PayPal is a leading technology platform that facilitates digital and mobile payments for consumers and merchants. PayPal users can 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 cryptocurrencies.
• Block (SQ): Block is an online digital and mobile payment platform for consumers and merchants and is the parent company of Square and Cash App. Cash App users can buy, sell, send, and receive Bitcoin. Block's decentralized tbd platform allows developers to build decentralized finance (DeFi) applications to run on programmable blockchains. Block is one of the largest Bitcoin investors, currently holding around $235 million in Bitcoin.
• Marathon Digital (MARA): Marathon Digital is a digital asset technology company and one of the largest and most valuable pure-play Bitcoin mining stocks. The company's fleet of more than 105,000 Bitcoin miners mined a record 2,195 BTC coins in the first quarter of 2023. Marathon Digital Executives also presented at the Global Investment Conference.
• Riot Platforms, Inc. (RIOT): Riot Platforms is a top cryptocurrency stock that hedge funds are investing in.
• Argo Blockchain plc (ARBK): Argo Blockchain is another top pick for hedge funds.
• Interactive Brokers Group Inc (IBKR): Interactive Brokers Group is an international brokerage that electronically trades stocks, options, futures, and more. IBKR offers a vast array of products, and its commodities futures trading desk allows customers to trade cryptocurrency futures.
• SoFi Technologies Inc (SOFI): SoFi Technologies is a financial services company offering a secure platform for trading cryptocurrencies, private loans, mortgages, credit cards, banking, and insurance. Cryptocurrency makes up only a small portion of SoFi's business, making it a good choice for gaining crypto exposure while maintaining diversification.

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