Everything Teenagers Need to Know About Investing In Cryptocurrency
Teenagers can think about investing in cryptocurrencies. Minors can’t invest in many things in the U.S., but anyone can invest in cryptocurrencies. Currently, no laws stop teens from buying or selling cryptocurrency, but there are some barriers to investing. A centralised exchange like Coinbase or Binance.us is the most common way to buy cryptocurrency. These exchanges make it easy to put down U.S. dollars and buy crypto. But to sign up for an account on most exchanges, you have to be at least 18 years old.
So, if you’re a teenager and want to start investing in cryptocurrency, there are only a few ways to do it, which we’ll discuss later.
What Investing in Cryptocurrency Means
The laws of supply and demand determine the value of any asset, including cryptocurrency. Since you can buy and sell many cryptocurrencies on public and private exchanges, the price is set by the market for that particular cryptocurrency. This means you can invest in any crypto asset, and the price will change based on how much demand there is on the market. Even though cryptocurrencies are considered risky investments, there are some that are worth more than others based on how popular they are, how widely they are used, and how much value they create in the market.
Bitcoin was the first type of cryptocurrency.
It was made by a programmer who went by name Satoshi Nakamoto in 2009. Users on the original blockchain network were given Bitcoin as a reward for processing and verifying transactions. As its popularity grew, more and more people started mining Bitcoin. Eventually, exchanges were set up so that Bitcoin could be bought and sold. In 2010, Bitcoin was worth only a few cents, but by 2017, it was worth more than $20,000.
Then its price went down for a while, but in 2021 it hit a record high of more than $68,000. The price of Bitcoin went down from there, dropping sharply below $20,000 and not going back above that mark until 2023. You can use crypto exchanges, brokerage accounts, and money apps to invest in Bitcoin.
Ethereum, whose native token is called Ether (or ETH), is now the second most popular cryptocurrency. It was the first blockchain-based currency to have smart contracts. Smart contracts are used by thousands of apps built on Ethereum’s blockchain. It also has faster transaction speeds than the standard Bitcoin network. Ethereum can be programmed, so it is used as the operating system for many decentralised crypto apps today. You can buy or sell Ethereum on most of the major cryptocurrency exchanges, through some brokerages, and even through a finance app.
What is a wallet for crypto?
When anyone, even a teen, buys a cryptocurrency, they need a place to keep it. Most of the time, if you buy cryptocurrency on a public exchange, they will store it for you in a wallet that is part of the exchange. And if you want to keep the cryptocurrency for yourself, you can make a crypto wallet and move it to it. The private keys to your cryptocurrency are kept in a crypto wallet.
You might consider a wallet a place to keep your money, but a crypto wallet is different. All cryptocurrencies are stored on the blockchain, but you need private keys to be able to use them. You can control the keys to your crypto coins with a crypto wallet, which means you can decide how to manage them. With a crypto wallet, you can send money to another wallet, trade your cryptocurrency for other tokens, or keep your private keys safe.
Different kinds of cryptocurrency
There are more than 20,000 different types of cryptocurrencies. Even though many of them aren’t worth much, all cryptocurrencies are worth about $1 trillion today. But they all fit into one of two main groups:
Coins: Crypto coins are cryptocurrencies built into a blockchain’s code.
These cryptocurrencies each have their own blockchain network, and are meant to be exchanged as a form of currency (like U.S. dollars or euros) (like U.S. dollars or euros). Bitcoin, Litecoin, and Dogecoin are all kinds of crypto coins.
Tokens: Tokens are digital currencies that are built on top of a blockchain network that already exists.
Tokens can be used for more than just trading. They can also be used in blockchain applications to manage access, track products, or verify actions within the app. Tether and Chainlink are two examples of these. There are many ways to use each kind of cryptocurrency, and each year, more and more ways are found.
How teenagers can start investing in cryptocurrency
Teenagers investing in cryptocurrency have the same options for buying and selling digital assets as adults. Here are the main ways to set up and manage accounts for crypto trading.
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Custodial Account for Crypto
A custodial account is an investment account that is run by an adult and can be opened on behalf of a child by a parent or guardian. They let parents or other family members invest for their minor children, but the money belongs to the child. For instance, EarlyBird was one of the first custodial accounts to let people invest in cryptocurrency. You can put money into your child’s EarlyBird account, where you can choose to invest in Bitcoin or Ethereum. EarlyBird also lets you invest in ETFs and other common types of investments.
Some cryptocurrency apps let kids earn cryptocurrency. For a flat fee, apps like Step make buying and selling Bitcoin easy. Step has a secured credit card for teens and a money app where your kids can buy and sell Bitcoin. For a 10 Step account to be opened for a minor, it needs to be sponsored by an adult.
When a cryptocurrency exchange is decentralised, transactions are made directly on the blockchain. Since there are no rules about who can use these exchanges right now, teens can connect their own digital wallets and trade cryptocurrency this way. But these exchanges are very risky, and you can’t trade fiat money (like U.S. dollars) for cryptocurrency. To use them, you must already have them in a digital wallet.
Investment Risks in Cryptocurrency
Investing in crypto is risky, full stop. It is a risky investment, and you shouldn’t put in more than you can afford to lose. Here are a few of the most common risks that teens and everyone else face when they invest in cryptocurrency:
Crypto is volatile by its very nature. As a new type of asset, the price still goes up and down a lot as more and more investors get involved. Because of this, you could lose some or all of your investment, and the value of your crypto could drop by 50% or more at times.
Uncertainty about the rules
Cryptocurrency is a very unregulated asset, and governments all over the world are keeping an eye on it in different ways. Some cryptocurrencies could be outlawed completely, and the use of others could be limited by some governments. These things could make a big difference in how much your investment is worth.
Even though crypto is protected by encryption and cryptography, many scams and hacks have cost investors billions of dollars since it was created in 2009. Even though you can protect your crypto wallet, exchange accounts, and other crypto apps, fraud is more likely than with most other assets. There are other ways to invest than in cryptocurrency.
Many people like the idea of investing in crypto, but other speculative investments can help you diversify your portfolio without as many risks as crypto.
Even though buying real estate can be expensive, you can gain exposure to real estate investments by investing in real estate investment trusts (REITs) and real estate-focused exchange-traded funds (ETFs). REITs let you invest directly in commercial and residential real estate projects, and some pay regular dividends from the rents they collect.
Gold, silver, and platinum are all examples of precious metals that can be invested in.
Gold is seen as a store of value because its price stays the same over time. Other precious metals, on the other hand, are seen as a risky investments that can give high returns (or losses). Recent returns on precious metals haven’t been great, but they can still help you diversify your investments.
In recent years, collectibles like baseball cards, Pokémon cards, classic cars, and art have become more popular than ever. Collectibles can be a good way to invest a small amount of money that could give you a big return, but if you buy the wrong thing at the wrong time, you could lose a lot of money. Prices for collectibles change a lot, but some can increase in value over a long period.