While young investors are often optimistic and willing to invest in crypto, according to the Chartered Financial Analyst (CFA) Institute, their family members may have concerns about it—especially given the collapse of several major crypto firms, including FTX—in November In the past, its founder was found guilty of stealing customers. Crypto is something It is a highly volatile asset class with broad risks, so it can be a divisive topic. How can you have discussions about crypto with your family members so that both parties feel comfortable?
Before you explain cryptocurrency to anyone, make sure you understand it yourself. Here's a quick guide.
1. Start with crypto basics
Start with the basics: Crypto is a new asset and technology. It is intended to be a digital currency. (Some companies and contractors will be paid in bitcoin, for example.) However, for now, it is more of a commodity, whether on crypto exchanges or as part of crypto exchange-traded funds (ETFs) listed on stock exchanges.
2. Explain how it is used
Then, you can get into the complex parts. Cryptocurrencies are built on blockchain technology, which is a digital ledger (your parents should know what that is). It records crypto identities, and is spread across a network of computers that record transactions permanently and transparently. No one can change blockchains, and anyone can view them. See, it's easy enough.
3. Be open to their questions
Don't feel bad if questions arise. “Why is new money needed?” they might ask. What makes cryptocurrencies different from traditional fiat money, apart from being virtual, is that they are not backed by a central bank or government. Explain that cryptocurrencies carry both advantages and disadvantages. Crypto transactions can be fast and cheap, but if something goes wrong—say, your digital coins end up in the wrong wallet—no one will step in (to get your money back). And investors treat them as commodities rather than real currencies.
Your parents may also ask about the difference between virtual coins. There are thousands of cryptocurrencies on the market, available through crypto exchanges and crypto trading platforms. Keep it simple by explaining that the three largest coins by market capitalization are bitcoin, ethereum and tether. (We answer other questions below.)
4. Be aware (and say you know) of its volatility and risk
For your financial knowledge and honesty with the family, you need to know that crypto does not grow fast. There may be stories of “get rich quick” investors, but there are many more stories of those who lost their money. If you express that you understand how important it is to invest in crypto, your parents are more likely to trust your information.
Taub warns that cryptocurrencies are “alternative” investments, and even within that broad category, they are considered extremely volatile and high risk.
And Simmons suggests researching Canadian crypto trading platforms and shows how to use one. Showing your parents how you plan to invest can help alleviate any concerns they feel about crypto scams, which are common (more on this below). Read our advice on choosing a crypto trading platform.
5. Explain whether you will (and won't) use crypto
Once you start a family conversation about crypto, Taub says, “Like any investment, the conversation should be about how it fits into your existing portfolio(s) and how it fits with your goals and investment objectives, your time frame and your risk appetite.”
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