Today’s financially savvy teens are thinking a lot about cryptocurrency, blockchain and non-fungible tokens, or NFTs.
Many of these young investors are curious about how they should start putting money into the often-volatile asset class.
Experts say that new investors don’t need to shy away from cryptocurrency, but warn that they should educate themselves on the asset class and be sure to take necessary precautions to be protected from volatility.
“I say dive right in, but dive right in with the appropriate amount,” said Brian Kelly, founder and CEO of BKCM, LLC during CNBC’s Thursday event, “Money without Borders: A Virtual Summit,” a collaboration between Invest In You and Junior Achievement.
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How much to invest
Because cryptocurrencies are much newer than other assets such as stocks and bonds, investing in them carries different risks, he said. To balance that risk, Kelly suggests making crypto investments a small part of the total money you put into the market.
“What I’ve always said to most people with an investment portfolio is take 5% or less of what you’d invest in stocks or bonds and put it into crypto,” he said. That way, if cryptocurrency doesn’t end up being a winning bet, you’re protected from extreme loss, he said.
“It’s going to hurt, but it’s not going to change your life,” Kelly added.
On the flip side, if cryptocurrency does grow exponentially, that original 5% could become a major part of your portfolio, he said.
“Just like any other investment, it is really about your position size and risk management,” he said. “Where people make mistakes is they just get too big because they want to try to get rich quick.”
Other experts say to only invest what you’re willing to lose.
“Never ever, ever, ever put in more money than you feel comfortable losing to something that you don’t fully understand or that has large volatility,” Sam Bankman-Fried, CEO and co-founder of FTX Group.
How to start investing
Once you’ve determined how much money you’d like to invest in cryptocurrency or NFTs, you should take time to fully understand the assets.
Part of that is trying out different products and platforms, according to Bankman-Fried.
“It’s really hard to have a deep understanding of what cryptocurrencies are, what NFTs are, what platforms are, what exchanges are, what blockchains are and what wallets are, if you haven’t used them,” he said.
Bankman-Fried suggests opening a few different accounts at different places with small amounts of money for testing purposes. Then, make use of all the available features in the accounts to get a sense of what it means to hold different assets, buy and sell and even send a transaction on a blockchain, he said.
“That is ultimately going to teach you a lot more about how the space works than any amount of talking or reading can do,” he said.
The power of cryptocurrency
Experts point to the exciting future of cryptocurrency and other digital assets because they change the landscape of financial services by extending access to groups that have traditionally been left out.
“We’ve seen the grassroots movements that actually have propelled cryptocurrency and that’s why you’ve seen communities that’ve been left out of the traditional financial system able to participate,” said Cleve Mesidor, executive director of the Blockchain Foundation.
Asian, Black and Hispanic adults are more likely to say they’ve invested in or traded cryptocurrency, according to Pew Research Center.
“Those who are left out are embracing this new currency,” said Mesidor. She also said the conflict in Ukraine has shown how cryptocurrency can be a helpful tool for war-torn victims, who are unable to access the money they’ve stored in home institutions but could get cryptocurrency.
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Disclosure: NBCUniversal and Comcast Ventures are investors in Acorns.