Minors' Guide To Cryptocurrency: Investing And Getting Started

Investing in cryptocurrency is a risky business, especially for minors. 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. However, if a minor wants to invest in cryptocurrency, they can do so with the help of a parent or guardian. Minors can also obtain cryptocurrency from sources other than major exchanges, such as apps that allow them to earn crypto or Bitcoin ATMs. It's important to remember that investing in cryptocurrency is speculative and there is a high risk of losing money.

Crypto custodial accounts

When it comes to storing cryptocurrency, investors can choose between custodial and non-custodial wallets. With a custodial wallet, another party controls your private keys. In other words, you trust a third party, such as a cryptocurrency exchange, to secure your funds and facilitate transactions. Most custodial wallets are web-based exchange wallets. While some consider custodial wallets less secure than non-custodial wallets, they are often preferred because they are more convenient and require less personal responsibility.

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 standalone products or add-ons 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 Crypto.com DeFi Wallet.

On the other hand, cold wallets are not connected to the internet and are considered more secure. They can be physical gadgets, such as USB sticks, or simply pieces of paper with your private keys written on them. Examples of cold wallets include the Ledger Nano S Plus, Ellipal Titan, and SafePal.

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

Crypto exchange-traded funds

Crypto ETFs were approved by the US Securities and Exchange Commission (SEC) in 2024. They trade just like stocks, and investors don't have to worry about the security of trading platforms or digital wallets because there are strong regulations around the companies that offer these ETFs. Crypto ETFs are also protected by the Securities Investor Protection Corporation (SIPC) since they are treated like stocks.

There are two main types of crypto ETFs: spot ETFs and futures ETFs. Spot ETFs directly hold and invest in cryptocurrencies, tracking their value. This allows investors to participate in the rise or decline of a cryptocurrency's value without buying and holding the actual currency via an exchange. On the other hand, futures ETFs track the prospective value of a cryptocurrency through futures contracts, which are agreements to buy or sell crypto at a preset date and price.

Some popular crypto ETFs include:

• Grayscale Bitcoin Trust ETF (GBTC)
• IShares Bitcoin Trust (IBIT)
• Bitwise Bitcoin ETF (BITB)
• ARK 21Shares Bitcoin ETF (ARKB)

While crypto ETFs offer a convenient way to invest in cryptocurrencies, they also have some disadvantages. One of the main drawbacks is the lack of direct ownership, as investors in crypto ETFs do not own the underlying digital assets. Additionally, crypto ETFs may have higher fees and expenses than other ETFs. They are also subject to the volatility of the crypto markets, which can be riskier than more typical ETFs.

Crypto-related stocks

If you are a minor interested in investing in crypto-related stocks, you may need to do so through a custodial account set up by your parents or another adult. Crypto-related stocks can be a way to gain exposure to the cryptocurrency market without directly investing in digital currencies. These stocks are offered by companies with businesses that are highly exposed to the cryptocurrency market or its underlying blockchain technology.

• PayPal Holdings, Inc. (PYPL): PayPal is a leading technology platform that facilitates digital and mobile payments for consumers and merchants. PayPal 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 enables users to buy and sell cryptocurrencies.
• Block (SQ): Formerly known as Square, Block is an online digital and mobile payment platform for consumers and merchants. The company's former CEO, Jack Dorsey, was an early Bitcoin bull. Cash App, owned by Block, allows users to buy, sell, send, and receive Bitcoin. Additionally, Block's decentralized tbd platform enables developers to build decentralised finance (DeFi) applications on programmable blockchains. Block holds around $235 million in Bitcoin on its balance sheet, making it one of the largest Bitcoin investors.
• CME Group: CME Group, formerly the Chicago Mercantile Exchange, operates one of the largest markets for trading futures and other derivatives. In late 2017, CME Group was among the first international stock exchanges to offer trading in Bitcoin futures, opening the door for new investors and exchange-traded funds to enter the crypto community. As a regulated futures trading organisation, CME Group maintains a strong position in the market.
• Riot Platforms, Inc. (RIOT): Riot Platforms is a leading cryptocurrency exchange offering services such as buying, selling, sending, and receiving cryptocurrencies. It is one of the top crypto-related stocks that hedge funds are investing in.
• Marathon Digital Holdings, Inc. (MARA): Marathon Digital is a digital asset technology company and one of the largest and most valuable pure-play Bitcoin mining stocks. In the first quarter of 2023, the company mined a record 2,195 BTC coins and held a total of 11,466 Bitcoins, worth about $326 million.
• Advanced Micro Devices (AMD): AMD is a semiconductor stock that offers exposure to the cryptocurrency market.
• Coinbase Global (COIN): Coinbase is a popular cryptocurrency exchange that allows users to buy, sell, and store various cryptocurrencies.
• Nvidia (NVDA): Nvidia is a trending cryptocurrency stock, although specific details about its exposure to the crypto market are not provided.

These companies provide various services and technologies related to the cryptocurrency market, such as crypto exchanges, digital wallets, Bitcoin mining, and blockchain technology. By investing in these stocks, you can gain exposure to the crypto market without directly purchasing digital currencies.

Crypto gifts

Gifting crypto to minors can be complicated, but there are a few ways to go about it.

Firstly, it is important to note that there is no minimum age to own cryptocurrency. However, most major crypto platforms require users to be at least 18 years old, so a minor will need assistance from a parent or guardian to set up an account. This can be done through a custodial account, joint account, or an account that allows the minor to earn crypto.

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 adult manages the account, the assets belong to the child. EarlyBird, for example, is a custodial account that offers crypto investing for minors.

Another option is to use a crypto app that allows minors to earn crypto. For instance, the Step app offers a secured credit card for teens and a finance app that lets kids buy and sell Bitcoin within the app, with an adult sponsor's approval.

Additionally, it is possible to buy crypto and store it in a "cold wallet", which is a hardware wallet that is not connected to the internet and is more secure than a hot wallet. When the minor turns 18, they can set up their own wallet and transfer the crypto to it. However, this method may have tax consequences, and it is important to keep track of the wallet's seed phrase to avoid losing access to the crypto.

Alternatively, a parent or guardian can purchase crypto on a crypto exchange under their own name and then send it to the minor's crypto wallet. This method requires the minor to have a crypto wallet, which can be set up without age verification, although some registered exchanges and wallet providers may not allow it.

In conclusion, while there are ways to gift crypto to minors, it is important to carefully consider the options and potential risks and tax implications before proceeding.

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