While younger investors tend to be more optimistic about 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 fall of a few major crypto firms, including FTX—last November, its founder was found guilty of stealing from customers. Crypto is a highly volatile asset type with wide-ranging risks, so it can be a divisive topic. How can you have conversations about crypto with your family members so that both sides feel comfortable?
Before you explain cryptocurrencies to anyone, make sure you understand them yourself. Here’s a quick guide.
1. Start with crypto basics
Start with the basics: Crypto is both an asset and a new technology. It is meant to be a digital currency. (Some companies and contractors will get paid in bitcoin, for example.) However, at the moment, it’s more of a tradable asset, whether on crypto exchanges or as part of crypto exchange-traded funds (ETFs) listed on stock exchanges.
2. Explain how it’s used
Then, you can get into the more complicated bits. Cryptocurrencies are built on blockchain technology, which is a digital ledger (your parents should know what that is). It logs the ownership of the crypto, and it’s spread across a network of computers that permanently and transparently records transactions. No one can alter the blockchains, and anyone can view them. See, simple enough.
3. Be open to their questions
Don’t get flustered when questions come up. “Why the need for new money?” they might ask. What sets cryptocurrencies apart from traditional fiat currencies, besides being virtual, is that they’re not backed by a central bank or government. Explain that cryptocurrencies carry both benefits and risks. Crypto transactions can be faster and cheaper, but if something goes wrong—say, your digital coins end up in the wrong wallet—there’s no one to intervene (get back your money). And investors treat them more like assets than as actual currencies.
Your parents might also ask about the differences between virtual coins. There are thousands of cryptocurrencies on the market, available via 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 cover more questions below.)
4. Be aware (and communicate that you’re aware) of its volatility and risk
For your own financial literacy and credibility with the fam, you need to know that crypto isn’t instant growth. There may be stories of investors who “got rich quick,” but there are many more stories of those who lost their money. If you express you understand how serious investing in crypto is, it’s more likely your parents will trust your knowledge.
Taub cautions 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 demonstrating how to use one. Showing your parents how you plan to invest may help ease any anxiety they feel about crypto scams, which are common (more on this below). Read our tips on choosing a crypto trading platform.
5. Explain how you will (and won’t) use crypto
Once you’ve started a family dialogue about crypto, Taub says, “As with any investment, the conversation should be about how it fits into your existing portfolio(s) and how it aligns with your goals and investment objectives, your time horizon and your appetite for risk.”