As cryptocurrency prices are tanking, once one of the largest cryptocurrencies is now worthless, and interest in NFTs is free-falling, many–predominantly new/young–investors who were left out on previous crypto gains are hoping to take advantage of the recent crypto crash to buy-in. In this article, we will look at why investing in cryptocurrency may not be the best idea, what else you can invest in, and, if you still want to invest in crypto, we’ll go over some of the best methods for doing so.

The TLDR (too long, don’t read) 

• Investment in crypto is often driven by fear of missing out, which is never a good basis for an investment.
• Cryptocurrency is almost completely unregulated, which opens investors up to potential. 
• Cryptocurrency is extremely volatile, and any investors should have a high risk tolerance.  
• I’m not trying to argue that you should or shouldn’t invest in cryptocurrency; just trying to make sure potential investors are aware of the risks involved.
• You can consider investing in stocks instead of cryptocurrency through a custodial investment account.
• If you do want to invest in cryptocurrency, you can invest in cryptocurrency companies (which indirectly exposes you to cryptocurrency), a fund that holds cryptocurrency like Greyscale (a crypto derivative fund), or directly invest in cryptocurrency by having an adult you trust purchase it for you and then transfer it to your wallet. 

Fear of missing out (FOMO)

Many cryptocurrencies and NFT investors are young investors under the age of 25. This may partially be because cryptocurrency is new, closely intertwined with the internet, and volatile, which may deter older investors. However, I would argue that the biggest reason is that veteran investors are wary of big promises in a new, unregulated, scam-filled environment.

While it can be tempting to see the monumental returns of early Bitcoin investors or the explosion of NFTs and want a piece of the action, it’s important to be careful and not get too carried away. Before making any investment, you should consider all of its risks and compare them with the potential reward to get a full picture of the investment.

While it’s understandable that people don’t want to miss out on the next “big thing,” whether that’s a new cryptocurrency or a new asset class like NFTs, you have to understand that with newness comes uncertainty. Consider the following example.

Apple has been producing consumer electronics for decades and has built up a loyal following of customers. Let’s say Pear, on the other hand, just started producing electronics a few years ago. While their products might look promising, there’s still a lot that could go wrong. Pear might not be able to gain market share in the well-established and competitive industry, or maybe its products won’t resonate with younger consumers. Since Pear is a new and untested company, there are a lot of risks to investing in them. Apple, on the other hand, has an established brand name, a history of stable growth, etc. For this reason, investors may be more inclined to invest in Apple, even though the potential returns are lower than at the newer company. 

This same concept is true for all forms of investing: new products/ideas are riskier than established ones because they don’t have a proven track record. While NFTs might be an interesting investment because they are so new, it’s extremely difficult to say whether or not they will succeed. While that’s not necessarily a reason not to invest in cryptocurrency, it is something to consider before getting too carried away with fantasies of monumental returns and FOMO. Let’s examine if crypto is a worthwhile investment in the following sections.

Cryptocurrency is almost completely unregulated 

First of all, no government, agency, or other third party regulates the legitimacy of cryptocurrencies and NFTs. By contrast, for a company to get its stock listed on a stock exchange, it needs to meet strict requirements about the number of shareholders, stock price, market capitalization, etc. Additionally, all companies must provide their financial reports to the Securities and Exchange Commission (SEC) on an ongoing, quarterly, and annual basis. If a stock does not meet rigorous standards for legitimacy and security, the SEC or a specific stock exchange can un-list that stock. This allows investors to feel safe knowing that all listed securities are legitimate companies that meet high standards. 

Unfortunately, due to the nature of decentralized cryptocurrencies, these safeguards do not yet exist in the crypto world. While there is value in decentralization and not having third-party regulation in the trading of cryptocurrencies, the lack of regulations has led to multiple large-scale debacles and makes investing in cryptocurrency much riskier. 

Let’s look at the cryptocurrency Tera-Luna as an example of what can happen in a completely unregulated environment. If you stay up to date with cryptocurrencies, you most likely will already be familiar with the Tera-Luna crash. In just a week, the coin lost nearly all of its $18 billion market capitalization due to the algorithm behind the currency failing. This is a perfect example of how the unregulated cryptocurrency markets can negatively impact investors. 

And situations like this aren’t even that uncommon due to the lack of regulation in the space. Unfortunately, it’s even riskier to invest in crypto due to the fact that crypto brokerages are not SIPC in case a brokerage fails. 

“The Securities Investors Protection Corporation (SIPC) is a non-government entity that replaces missing stocks and other securities in customer accounts held by its members up to $500,000, including up to $250,000 in cash, if a member brokerage or bank brokerage subsidiary fails.” – FDIC.gov

This means that if Coinbase, Voyager, BlockFi, or any other cryptocurrency platform fails, you could lose all of your invested money. A situation like this is also especially likely for cryptocurrency because it is a newer asset class fraught with volatility and scams. In contrast, when you invest in stocks at a SIPC brokerage (which most brokerages are), in the case that brokerage fails, you will still get all of your money back up to a certain limit. 

Since stocks and cash holdings in FDIC brokerages are insured, worst-case scenario, you will still get your money back in case of a brokerage failure. You simply don’t have that safety in the crypto, where it is even more likely to be needed. 

Cryptocurrency is extremely volatile

It is typically recommended that even when investing in stocks and index funds, you do not invest any money you will need in the next few years. This is because the stock market can experience significant and sustained declines in the short term. With cryptocurrency, it’s important to have an even longer time horizon because it is much more volatile than stocks. 

Bitcoin is the largest cryptocurrency and is often praised for its relative stability and has insane volatility compared to some of the most volatile stocks with similar market capitalizations. 

“The volatility of Bitcoin is measured by how much Bitcoin’s price fluctuates, relative to the average price in a period of time” – BuyBitcoinWorldwide.com 

As of the writing of this article, Bitcoin has a volatility index of 5.45%, meaning that it fluctuates an average of 5.45% compared to its average prices for the last 30 days. 

This is much high than the vast majority of stocks, meaning that sudden swings – positive or negative – are much more frequent. This makes cryptocurrency especially bad for short-term investments because you never know what might happen in even just a few days.

It’s not all bad…

All of this may sound very doom and gloom biased. I want to clarify that I personally don’t think that cryptocurrencies are the worst investment. I think that there is a lot of promising new technology in the space and that investors shouldn’t ignore cryptocurrency altogether. That being said, you also shouldn’t get carried away investing in crypto, especially if you aren’t prepared for risk and volatility. 

If you are interested in cryptocurrency but are concerned about the risks, you could consider keeping an eye on the space, and waiting for more regulation and stability in the space before investing. 

What to invest in instead

If you have been persuaded against cryptocurrency for the reasons I have just mentioned, that certainly doesn’t mean you should give up together on investing. I would instead urge you to look at investing in the stock market (which also happens to be much easy for teenagers than buying cryptocurrency). Investing is always a better financial decision than pointless spending and often better than just keeping it in savings.

Before we dive into how to invest in the stock market, I’ll briefly go over some of the benefits of investing in stocks. Mainly, you can trust that the US stock market has been relatively stable over a long period of time. There are decades upon decades of market history that time and time again show that investing in stocks can generate a consistent 7-10% return per year when done correctly. You can also rest assured with confidence that even if there is a dip, recession, or bear market, the market will eventually bounce back. 

All of that being said, it’s quite easy to invest in stocks, even as a teenager. You will, however, need the assistance of one of your parents to open an investment account. As a teenager, you can open a custodial investment account that will allow you to invest with the approval of your parents. 

“The term custodial account generally refers to a savings account at a financial institution, mutual fund company, or brokerage firm that an adult controls for a minor (a person under the age of 18 or 21 years, depending on the laws of the state of residence).” – Troy Segal, Investopedia. 

Within your custodial investment account, you can get a sense of investing and what it’s like to own tradeable assets. You should practice good investing habits, like investing consistently, holding for long periods of time, and managing risk depending on your age and goals. Over time you will build up good habits as well as a sense of how much risk you are comfortable with. Then you can reassess whether or not you want to invest in NFTs and if you still want to, consider the steps below. 

How to invest in cryptocurrency as a teenager if you still want to

While there is no law against teenagers buying cryptocurrency, it is currently in a legal grey area (due again to lack of regulation), meaning that most brokerages don’t want to chance potential legal responsibilities. This means that it’s nearly impossible to buy cryptocurrency in the traditional way. 

Derivatives

Instead of investing directly into cryptocurrency, you can buy crypto derivatives that have a similar price to the underlying crypto. For example, the company Greyscale buys and holds Bitcoin, which investors can buy through the stock Grayscale Bitcoin Trust (Ticker: GBTC). This is one of the easiest ways to invest in cryptocurrency because you can buy an organization listed on the stock market within a custodial account.

Unfortunately, this may not be the best method for investing in cryptocurrency because the price of the stock is not directly tied to the value of the underlying asset; it’s subject to market influences, just like any other stock. 

For example, in the past year, bitcoin was down just 11%, whereas GBTC is down a whopping 35%, as you can see in the picture below. 

While in different/shorter periods of time, the Bitcoin Trust may have performed better than Bitcoin, this just goes to show how different investing in a Cryptocurrency derivative is. For this reason, I would recommend against using this method. 

Crypto companies

Another indirect way of investing in cryptocurrency is by investing in crypto company stocks. This has its benefits because it almost serves as a cryptocurrency ETF. By investing in crypto brokerages, you will get exposure to every currency on the platform because of the close connection between crypto prices and earnings for those companies. 

This method is, again, not great because it’s not directly related to the price of cryptocurrency and can’t be used in any of the same ways. 

Transfer 

By far, the best option for most people would be to have an adult purchase cryptocurrency with your money and then transfer that money to your crypto wallet. This method is a bit confusing, and I explained this thoroughly in another article that is quoted here:

Although there’s no law against people under the age of 18 – at least in the United States – most cryptocurrency exchanges like Coinbase or Binance don’t allow minors to transact. But you can still send and receive cryptocurrency to a crypto wallet; you just can’t buy it. 

“Crypto wallets keep your private keys – the passwords that give you access to your cryptocurrencies – safe and accessible, allowing you to send and receive cryptocurrencies like Bitcoin and Ethereum” – Coinbase. 

So if you know a trusted adult who already owns cryptocurrency or someone who would be willing to help you out, you can make a crypto wallet and ask them to purchase and send you cryptocurrency. Then you can pay them an equivalent amount of money in cash. 

This way, you’ll be able to own crypto directly.

If you don’t know anyone who already invests in crypto, you could try to convince one of your parents to open up an account with the crypto exchange. However, this can be a time-consuming process, so your parents probably won’t be all that excited about this approach.”

NFTs

NFTs, on the other hand, are a different story. Although I only have limited knowledge of NFTs, from the research I’ve done and my own testing, it seems impossible for minors to buy NFTs. 

“The consensus for most platforms is that the buyer needs to be 18 years old or older. There are a few exceptions depending on what state you reside in the United States. So the age may vary in some areas, but most platforms require you to be 18,” writes Andy Storey from the NFT website postergrind.com.