You may have already heard about Bitcoin (BTC), Ethereum (ETH), Dogecoin (DOGE) and hundreds of other types of crypto investing options. Due to the wide variety of options available to you, trying to determine your best bet for investing in blockchain technology might seem overwhelming. Despite the numerous options, digital currency might be one of the best ways to spend for your child’s future.
By the way, if you’re looking into buying crypto for kids, you’re likely already thinking outside the 529 plan box. Pat yourself on the back, because this type of financial literacy could open doors for your child in ways you may not even be able to predict. A cryptocurrency exchange could work magic for your child’s future.
In this article, we’ll go over the definition of cryptocurrency, learn why you might want to buy crypto for kids, how to buy crypto for your children and other key considerations.
What is Cryptocurrency?
Cryptocurrency, also called crypto, is a type of digital asset different from U.S. dollars that people use for online purchases. Cryptocurrency doesn’t use a central authority (like a bank) in order to circulate. Instead, it is secured using cryptography, which means that it’s built to be impervious to hackers and counterfeiting. Cryptocurrencies are on the blockchain, which is a fancy way of saying that all transactions are on the public record. Furthermore, no government or bank controls how cryptocurrency circulates, its value or how it exchanges. Crypto is worth whatever people are willing to pay for it.
Why Buy Crypto for Kids?
Crypto platforms like Coinbase and Paypal impose a minimum age restriction. You must be at least 18 if you want to buy digital currency.
It’s easier than ever to buy shares of stocks on the stock market online these days, which also means it’s easy to buy cryptocurrency as well. Gamified interfaces, accessible tools (and apps) and easy retrieval of your crypto stores makes it easy to invest. Plus, with the added benefit of compounding, investing on behalf of kids while they’re young can make a huge difference.
Parents can buy custodial accounts for their children and put cryptocurrency in it. If a child wants to invest in cryptocurrency, an adult has to act as the custodian. This means that the assets are in the child’s name but they are managed by the parents — they do not require the services of an attorney or the court appointment of a trustee.
The bottom line: Buying crypto for kids could be a better investment than investing in a brokerage account or with a financial advisor. However, it’s worth considering a wide range of investment options before you decide on the right type of investment for you.
How to Buy Crypto for Kids
Let’s look at a step-by-step overview of buying crypto for kids. It really is as simple as connecting your bank account and purchasing. In a way, it’s very similar to purchasing stocks from a broker.
Step 1: Select a cryptocurrency exchange or broker.
A cryptocurrency exchange looks like a stock exchange in which buyers and sellers trade based on the current market price of the cryptocurrency. An exchange offers an online platform for buyers and sellers who trade cryptocurrencies with each other. An exchange acts as the intermediary to buy and sell cryptocurrencies based on current market prices and charges a transaction fee.
Exchanges usually carry low fees but sometimes have complex dashboards, such as advanced performance charts, which can seem confusing to beginning cryptocurrency investors. You may hear of some of these cryptocurrency exchanges using a quick Google search: Coinbase, Gemini and Binance.US.
Cryptocurrency brokers enable buying and selling for customers at prices set by the broker. They also interact with cryptocurrency exchanges for you. It’s cryptocurrency investing at its easiest because brokers typically offer simpler interfaces. However, some charge higher fees than brokers. Robinhood is one of the most well-known crypto brokers. UNest allows parents to purchase cryptocurrency for kids as well.
Note that with brokers, you typically must transfer your crypto holdings out of your account, into a crypto wallet (either a hot wallet, connected to the internet, or a cold wallet, not connected to the internet) for more security. Cold storage keeps hackers from stealing your crypto, which might be your best bet when you’re investing for kids. You can choose from a paper wallet (which holds paper documents with your private keys, QR code and crypto address) or a hardware wallet (which is connected by what looks like a USB drive — all private keys are stored on the device and safely out of the hands of hackers).
It’s a good idea to carefully consider the differences between a cryptocurrency exchange or broker before you choose one. Understanding each approach and the underlying trading processes is important to understand.
Hint: Cryptocurrency brokers may offer the best option for beginning investors if you want to buy a small amount of cryptocurrency.
Step 2: Create and set up your account.
Once you select the right cryptocurrency broker or exchange for your needs, you can sign up to open an account. The platform may require you to verify your identity in order to meet anti-fraud and federal regulatory requirements.
You may not be able to buy or sell cryptocurrency until you undergo a verification process. Your platform may ask you to submit a copy of your driver’s license or passport or other identifying documents.
In order to buy crypto, you’ll need to make sure you have funds in your account, which you can typically fund in the following ways:
- Link your bank account
- Initiate a wire transfer
- Make a payment with a debit or credit card (but be aware that you may have to pay additional cash advance fees in order to purchase cryptocurrency with a credit card)
Depending on the exchange or broker, it might take a while before you can use the money you deposit to buy cryptocurrency.
Step 3: Place your crypto order.
Once you’ve placed money in your account, you’re ready to order! You can choose from a wide variety of cryptocurrency options, from the well-known Bitcoin to the slightly lesser-known coins like Stablecoin and Polkadot.
The number of coins you purchase is a personal decision. However, the more you purchase initially and the amount of coins you decide to purchase in the long run helps determine how much you’ll end up with over time.
Once you’ve decided on the type of coin you’d like to purchase, enter the ticker symbol of the coin or coins you’d like to purchase (BTC for Bitcoin, ETH for ETH, XRP for Ripple, etc.) You may be able to buy fractions shares of various coins as well. This means that you buy partial shares. As of June 5, 2022, one BTC was worth $29,973.70!
Key Considerations When Buying Crypto for Kids
You may have heard about the fact that buying crypto is risky, and you’re right. However, it’s important to understand that all investments are inherently risky because you could lose money — whether you choose to invest in cryptocurrency, stocks or another type of investment altogether. It’s important to keep a few of the following risks in mind before you decide to put your child’s money into cryptocurrencies:
- Volatile: Cryptocurrencies are speculative investments, which means that prices can move all over the place, causing you to experience large losses. This could happen tomorrow or over the course of time.
- Scam-worthy: It’s easy to encounter scams, from fake cryptocurrency exchanges (or at least, exchanges that don’t have your best interests at heart), phishing scams, pump-and-dump schemes, fake apps and celebrity endorsements and coins that end up fading away quickly, hoping to make a quick buck. Fake initial coin offerings (ICOs) can be a real risk.
- No “real worth”: Cryptocurrency is only worth something because people say that it’s valuable. Many experts even say that cryptocurrency doesn’t have any inherent value. In the future, people may start to devalue crypto and the price might run right down to as much as a startup is worth on day one — that is to say, $0.
- Regulatory concerns: Cryptocurrency may face regulatory concerns in the future, meaning that the U.S. government may get involved in imposing sanctions on cryptocurrency in the future. Nobody really knows what cryptocurrency’s future may be in relation to government intervention.
- Fees: You’ll pay transaction fees for cryptocurrency, and these might end up being more costly than sticking to tried-and-true stocks, bonds or mutual funds.
Finally, consider gift tax considerations as well. Keep in mind that you’ll only have to stick to gifting less than $15,000 worth of crypto to bypass the gift tax allowance.
Is Buying Crypto for Kids Right for You?
So, should you buy crypto for your kids? Putting together a crypto account is a completely personal decision, so consider all the pros and cons prior to deciding the best route for your family’s needs. However, keep in mind that many cryptocurrency investors have made a lot of money over the course of crypto’s history, so it could benefit your child down the road, whether they hold onto it to buy a house or for retirement (imagine what it could be then!), but on the flip side there is risk involved, and losing that money is also a reality.
Imagine your child’s future. What does it look like? Let UNest help build it. UNest offers UTMA plans, which allow the money saved to be used for any purpose, as long as it’s for the child. You can also tap into greater investing flexibility by investing in crypto, NFTs and/or individual stock investing products with UNest.