Have you heard your teen mentioning ‘Bitcoin’ and ‘Dogecoin’ or noticed they’ve developed a sudden interest in cryptocurrency forums? The number of teens entering the world of cryptocurrency (or crypto) trading is on the rise; however, some digital wellbeing experts are starting to raise concerns about this growing trend. Here’s what you need to know about crypto and its risks to teen traders.
What is cryptocurrency?
While crypto has made some inroads into everyday transactions, with some retail and gaming platforms accepting it as payment, it’s not yet a common method for routine purchases. Instead, cryptocurrency is often used for transactions between individuals who prefer to keep their dealings untraceable. This has led to its popularity on the dark web and made it the currency of choice for scammers and those engaged in less-than-legal activities.
Most people regard the buying and selling of cryptocurrency as similar to stock trading. While financial gain is the main objective for teen traders, they also can be heavily influenced by social media, online communities, and gaming platforms.
Can kids buy cryptocurrency?
- Peer-to-peer. Transactions with an individual, through a P2P platform or more informally, can be prone to fraud and scams.
- Unregulated or non-KYC platforms. These platforms allow users to trade without verifying their identity, but as you’ve probably guessed, they are less secure and more prone to scams than regulated exchanges.
- Crypto ATMs. With over 40,000 dotted around the world, crypto ATMs look like regular ATMs but allow users to buy crypto (usually Bitcoin) with cash and don’t typically require age verification.
- With the help of a parent or guardian. Probably the safest option, an adult could open and manage transactions on a regulated crypto exchange on the teen’s behalf.
What are the risks for teen crypto traders?
Strong likelihood of losing money
Cryptocurrencies are highly volatile, meaning traders have the potential to make or lose a lot of money when prices swing up or down. For example, when the pandemic caused the markets to crash in March 2020, Bitcoin lost half its value in two days. A teen or someone new to investing may not fully understand the financial risk if a coin loses value or the market crashes.
Potential for addiction akin to gambling
Similar to when a gambler wins money, making quick, easy gains from crypto releases dopamine and creates a feeling of excitement that a trader will want to feel again and again. To a developing teenage brain, this feeling may be too strong to manage and lead to them chasing this instant gratification.
Unlike stock markets, crypto trading is available 24/7 giving potentially dangerous, non-stop access to those prone to obsessive trading.
Hype and FOMO
A major part of crypto trading is interacting with like-minded people on social media and in online communities such as r/CryptoCurrency on Reddit. Seeing others brag about their huge gains can make it seem like everyone is winning big and create a strong feeling of missing out (FOMO). Teen traders are more likely to succumb to hype and FOMO and make investing decisions based on impulse and emotion rather than research and rationale.
Scams and fraud
The anonymity of cryptocurrency coupled with its newness and lack of regulation, makes the crypto market a paradise for scammers; and as cryptocurrencies operate in a decentralized system, banks or governments cannot step in and help recover lost money.
Here are a few common crypto scams:
- Fake crypto and ICOs (initial coin offerings). Scammers create a fake cryptocurrency or ICO only to disappear with investors’ money.
- “Pump and dump”. Scammers hype up an obscure coin on social media or forums, driving up the price (“pump”). They then sell once enough people have bought in, causing a crash (“dump”).
- Fake exchanges. A scammer creates an exchange platform offering low fees and introductory bonuses to attract new users, only to lock them out once they’ve deposited funds.
- Ponzi or pyramid schemes. Scammers use funds from new investors to pay earlier investors only for the project to crash when the “profits” dry up.
- Fake celebrity endorsements. Scammers pose as influential people on social media and DM users offering too-good-to-be-true investment opportunities. Over 6 months in 2021, crypto scammers pretending to be Elon Musk made more than $2m.
Crypto scammers use their shady skills to steal login credentials and private keys too. Common methods include phishing, via emails or fake platforms that look like legitimate crypto exchanges; and by posing as loved ones asking for passwords and keys.
Although traders of all ages can be victims of crypto scams, teens can be more trusting and tend to overlook signs of a scam when caught up in the hype of cashing in on crypto.
Crypto for kids: Our recommendation for parents
As a parent, staying informed about the digital world your teen is participating in is essential. If your teen is interested in cryptocurrency trading, ensure you engage in open conversations about it with them, including its risks, and encourage critical thinking and responsible financial behavior. By fostering a supportive and communicative environment, you can help your teen make informed decisions in this ever-evolving digital landscape. Because of the high risk of being caught up in crypto scams, you should also ensure your child knows how to spot, and avoid falling for an online scam.
When it comes to the practicalities of trading, some parents open accounts and manage transactions on their teen’s behalf, on established and regulated exchange platforms such as Binance, Coinbase, and Kraken. This approach allows their crypto-curious teen to dip their toe into the world of trading and learn valuable lessons while minimizing the risks. However, this scenario should be considered carefully as the risks of loss will simply be passed on to the parents.
As parents in the digital world, our focus should not be on discouraging curiosity but on guiding it in the right direction.
However, if your teen’s crypto trading has become problematic, consider using a parental control solution like Qustodio to limit the time your child spends on crypto trading platforms – or completely block access to them if needed. You can also limit or block access to social media platforms and forums where teens can easily get caught up in crypto hype.
