Get Cryptocurrency For A Child: Can A Kid Invest In Crypto?


Cryptocurrencies like Bitcoin, Ethereum, and Litecoin have been on a tear lately. Some people call it a bubble, but others believe this is just the beginning of cryptocurrencies becoming more mainstream. So, what does this mean for your children? Can a kid invest in cryptocurrency?

Kids can invest in cryptocurrency with help from an adult. Most exchanges impose a minimum age of 18 due to KYC standards. Changing tokens to fiat currency requires an adult’s assistance, but other direct exchanges exist.

Investing in cryptocurrency can be a risky proposition. Still, if you believe in the future of digital currencies, it could be an excellent way to start teaching your kids about financial planning and investing. Ensure that you do your research first and only invest what you can afford to lose.

Cheerful boy holding an overly large bitcoin.

Why Can’t Kids Buy Crypto?

While adults have been investing in cryptocurrencies to make a profit, children have been left out of the market. The main reason that kids can’t buy crypto is because of Know Your Customer (KYC) laws.

In most jurisdictions, Know Your Customer (KYC) laws require financial institutions to verify the identity of their customers before allowing them to make transactions. This is to prevent money laundering and other illicit activities. 

For crypto exchanges, this typically involves collecting a government-issued ID, such as a driver’s license or passport. However, these documents are not generally available to minors, making it difficult for them to comply with KYC laws. As a result, many crypto exchanges do not allow children to open accounts.

A few exchanges have found ways to work around this issue, but they are in the minority. 

LocalMonero allows users to buy and sell Monero anonymously without needing KYC documentation. Similarly, Bisq is a decentralized exchange that does not require ID for small transactions.

How Can Parents Invest in Crypto for Their Kids?

Parents can open a crypto exchange account for their use. They may buy cryptocurrency for their child and transfer the funds to a personal wallet. I recommend holding the tokens in a cold wallet on behalf of your child. 

Once the child is 18, parents can then gift the hardware wallet or private keys to the child, giving the now-adult child control over the assets.

A cold wallet is a secure offline storage medium for holding cryptographic assets, typically a portable USB device. 

Unlike a hot wallet, which is connected to the internet and therefore exposed to hacking attempts, a cold wallet is inaccessible to hackers. Even when connecting a cold wallet to your computer, your private keys never leave the device. This makes it an ideal storage solution for people who want to keep their cryptocurrencies safe from online threats. 

The most popularly used cold wallets include:

  • Ledger Nano S
  • Trezor
  • OpenDime
  • KeepKey

Another option for parents is to use a custodial account. These are accounts held by a third party on behalf of the account holder. In the case of cryptocurrency, this would be an exchange or online wallet that supports custodial accounts.

Custodial accounts are similar to cold wallets because they provide a safe way to store cryptocurrencies. However, they also come with additional benefits, such as the ability to trade or transact with the coins stored in the account.

On the downside, holding cryptocurrency in an online or exchange wallet makes it susceptible to cyberattack and theft. To mitigate risk, reputable exchanges hold insurance policies to cover this type of event.

Coinbase is one of the most popular exchanges that offer custodial accounts. They allow parents to set up an account for their kids and then link it to a bank account or debit card. This makes it easy for parents to top up the account and manage their child’s cryptocurrency balance.

Several different cryptocurrency coins under a christmas tree with other gift boxes.

Gifting Crypto to Children

When a minor turns 18, a parent may want to transfer the cryptocurrency they hold on their behalf to the child. If the parent decides to do this, they will need to send the coins from their wallet to the child’s wallet. The child will then be able to use or trade the currency as they see fit.

This is similar to the requirements (and typical advice) of other asset classes like stocks, bonds, real estate, and even cash savings accounts.

Because cryptocurrency transactions are irreversible, you must know what you are doing before sending a gift. This way, your gift will be delivered as planned. 

The tax consequences are another thing to consider when sending money. Depending on how much money you send, the government may take a cut. So, it’s best to consult a tax professional beforehand.

Other things you’ll want to keep in mind when gifting crypto to your kids:

  1. Teach them about cryptocurrency and how it works – this will help them be better stewards of their new wealth and also help protect them from scams.
  2. Show them how to store their cryptocurrencies in a safe place.
  3. Help them understand the tax implications of owning cryptocurrency.
  4. Be available to answer any questions they may have about their new investment.
  5. Please encourage them to use their cryptocurrencies for good causes.

Following these tips can help your child get started on the right foot with their new cryptocurrency holdings.

Benefits of Early Investment

Albert Einstein is well known for stating that compound interest is the world’s eighth wonder. He understood that when money grows, it does so at an accelerating rate. This is because interest is added to the original investment and the accumulated interest from previous periods.

The power of compounding is why many financial experts recommend starting to invest as early as possible. The earlier you start, the longer your money has to grow and the more time it has to compound.

The cryptocurrency market is still in its early stages, which means there is a lot of growth potential. As more people adopt and use cryptocurrencies, their value will likely increase. Investing early gives you a chance to get in on the ground floor of an emerging market and potentially see huge returns on your investment.  

Since cryptocurrency is a new asset class, the opportunities for leveraging compounding are more niche. I use Cryto.com’s Earn program to earn interest.  

There are several other strategies for advanced investors. 

The Crypto Cashflow newsletter from Stansberry Research details how to use cryptocurrency for cash flow. Investors can then reinvest the proceeds into other crypto assets. I was an early subscriber to this newsletter but have since switched to Crypto Capital. I am not affiliated with Stansberry Research in any way other than as a happy subscriber.

Of course, there’s no guarantee that cryptocurrency will still be around in 40 or 50 years. But, if it is, and it continues to grow as a respected asset type, then investing early could lead to a significant payoff down the road.

Financial Disclaimer: This content is for educational purposes only and is not suitable as financial advice. Opinions and statements expressed herein are those of the author. They do not reflect the views of Data Overhaulers or its owner. Data Overhaulers is not a subsidiary of or owned by any ICOs, blockchain startups, or companies that advertise on our platform. Investors should do their due diligence and meet with a licensed financial advisor before making any investments in any ICOs, blockchain startups, or cryptocurrencies. Please be advised that your investments are at your own risk, and any losses you may incur are your responsibility.

Mike Chu

Mike is a web developer and content writer living as a digital nomad. With more than 20 years of devops experience, he brings his "programmer with people skills" approach to help explain technology to the average user. Check out his full author bio by clicking here.

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