Can I Buy Cryptocurrencies for My Child?

More and more parents notice that cryptocurrencies continuously outperform other assets. Bitcoin grew from $0.08 in 2010 to $64,805 in April 2021. We can only imagine what happens during the next 10 or 20 years. So should your children own some bitcoin? If you think they should, you are wondering: can I buy cryptocurrencies for my child, and if yes, how? You can, although it’s not a straightforward process. We explain how you can invest in crypto and pass it onto your children and what you need to consider.

Can I buy cryptocurrencies for my child or create a crypto account for them?

If we are to believe the trends in the financial world, crypto is the currency of the future. So why not get the kids used to the idea when they’re still young — and improve their financial literacy & security in the future.

Unfortunately, it’s not yet possible to buy crypto in your child’s name. To open an account on a licensed service provider like Coinmotion, one must be over 18 years old. Coinmotion is currently working on making it possible for anybody to invest in crypto regardless of their age or location in the future.

A few years ago, a UK startup called Pigzbe attempted to create a “family-friendly” cryptocurrency and give parents a way to open crypto wallets for their children — but shut down in 2020 due to the inability to secure more funding. While such futuristic services are not yet available, here is how you can give crypto to your children or underaged relatives.

How can I buy cryptocurrencies for my child

First, you need to create an account in your name on a licensed cryptocurrency platform. You deposit fiat money (e.g., euros or dollars) to the platform, buy Bitcoin and other cryptocurrencies that you think are good for holding long-term.

Buy a secure crypto wallet

Next, you can buy a Ledger, Trezor, or any other hardware cryptocurrency wallet. It’s a highly secure way to store your crypto away from hackers. It’s also a simple way to hand over your digital assets to someone else. This is why a hardware wallet is the best for the purpose. Only you or your child will have custody of your cryptocurrencies and the private keys for the wallet.

You should store your wallet passphrase safely as a backup in case you lose or break your hardware wallet. Preferably on something else than just paper. Even if you lose the device, you or your child can buy another hardware wallet and access funds with a passphrase that consists of 24 words.

When you’ve received your hardware wallet, move the crypto from the place of purchase (platform) – into the hardware wallet. After that, you just need to donate the wallet (with its holdings) to your child, and that’s it.

A paper wallet is also an option

A paper wallet consists only of the passphrase, usually written on a piece of paper. Hence the name “paper wallet.” However, paper is less durable than a hardware wallet, so it’s not an optimal choice. In both cases, however, you really should take good care of the passphrase. You may have gotten off the hook in school by stating that your dog ate your homework. But if that happened to your passphrase — you are way worse off.

Investing in crypto stocks

Another way to expose your children or yourself to bitcoin is to buy and hold the stocks of companies with cryptocurrency-related services or hold coins themselves.

US-based Tesla, MicroStrategy, and Coinbase are the biggest publicly traded companies whose business strategies are largely or partially related to crypto. Tesla and MicroStrategy invest and hold bitcoin. Coinbase is an exchange that onboards many beginners and even institutions to start investing in crypto.

Alternatively, you could also buy Nvidia, which makes graphic cards that are suitable for cryptocurrency mining.

Investing in crypto-related securities in Finland & Europe

There are already a few Bitcoin ETFs (Exchange Traded Funds) approved in Canada and Brazil while more applications are pending in the United States. Some Finnish banks and asset managers already have the option of buying Bitcoin ETFs or derivative products that follow Bitcoins’ value on a 1:1 basis. This kind of development gives more possibilities for investors looking into getting into Bitcoin through traditional markets. So there are ETFs that hold cryptocurrencies — but there are also ETFs that hold shares of companies dealing with blockchain technology.

While these possibilities may seem more convenient and regulated, they also offer some drawbacks. 

Can I buy cryptocurrencies for my child: consider the costs

Firstly, the costs of investing in securities are more than holding your crypto in a hardware wallet or an exchange. Both methods imply you need to pay trading fees. But often, ETFs and especially securities have yearly storage fees called operating expenses on top of that. In some cases, these fees can be anywhere from 0.5% per year to 2% per year.

While with a crypto wallet, you would not be paying yearly storage fees and could be earning some passive crypto income (by lending out or staking with 3-12% interest payable per year), paying yearly fees for securities does not sound as lucrative.

Consider the regulations

The second drawback is related primarily to the nature of underaged investor protection in Finland. According to Finnish law, children have guardians (parents) who are to carry out and oversee the best interests of their children. Financially this means that the parents shouldn’t take “too much risk” when investing for their children.

Generally, mutual funds and public companies are in the “normal risk” category. Derivatives are usually considered to be very risky. ETFs are normally okay unless the ETF in question is labeled as “high risk.” So you may need to apply for a license for investing your children’s money into risky investment products through the Finnish Magistrate.

The regulations in countries outside Finland may vary. Please check them depending on where you live.

Taxation of crypto you buy for your children — Finland’s example

If your children receive a hardware or paper wallet from you, what taxes should they pay and when? In short, in Finland, you can donate funds under 5,000 euros every three years. This basically means that donating 4,800-4,900 euros worth of crypto every three years with a hardware wallet would be excluded from gift tax.

Note that a high-quality hardware wallet such as Ledger bought from a retailer (i.e., not second-hand) is also worth something. The tax authorities might consider the wallet as part of the gift’s value. If you want the gift to be exempt from tax, you may need to take this into account.

While these kinds of transactions are not subject to taxation, it would still be worthwhile to transcribe a deed of donation – just to have everything in black and white. Make a deed yourself or have a qualified person to make one. A deed can also be helpful later when you need to find out the acquisition cost for the cryptos you have donated.

Disclaimer: This is a brief and general overview of how buying cryptocurrencies or other assets for underaged minors works. We recommend doing your own research for your specific situation and making decisions based on your personal goals. The information provided is subject to change without notice. The information or views expressed in this text should not be taken as financial recommendations or as investment advice.

Written by Sami Kriikkula and Valeriya Kushchuk