New to Crypto? Do These 3 Things Before You Buy

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Cryptocurrency prices have plummeted. Bitcoin (CRYPTO:BTC) has lost about half of its value in the past two months, currently priced at around $36,000 per token, down from its all-time high of nearly $70,000 per token at mid-November.

While this downturn can be a daunting time to invest, dips like this can actually be fantastic buying opportunities.

Cryptocurrency is more affordable than it has been in months. Although past performance is not always indicative of future returns, this kind of volatility is normal for crypto. This means that there is a good chance that major cryptocurrencies like Bitcoin and Ethereum (CRYPTO:ETH) will eventually rebound. By investing now, you could potentially see substantial returns down the road.

If you have decided that you are ready to invest in crypto, now is a great opportunity. However, there are a few things to keep in mind before buying.

Image source: Getty Images.

1. Consider your risk tolerance

The most important thing to know about cryptocurrency is that it is a speculative investment. This means that no one knows for sure if it will succeed in the long term, and its growth so far is mostly based on its potential.

This makes crypto a high-risk investment, so make sure you know what you’re getting into before you buy. Cryptocurrency has a lot of potential and it is possible that you can make a lot of money in the long run. But it could also fail and you could lose everything you invest.

Before investing, think about the level of risk you can tolerate. If you’re ready to ride out the inevitable periods of volatility for a chance to earn substantial returns over the long term, crypto may be the right investment for you.

2. Determine how much you can afford to invest

Because there is a chance that cryptocurrency will fail, it is important to only invest money that you can reasonably afford to lose.

Also, be prepared to keep your money invested for several years or even decades. Since crypto prices often drop in the blink of an eye, it’s best to avoid investing any money you might need for the foreseeable future. If prices crash and you find you need to sell your investments to cover an unexpected expense, you could end up selling for less than you paid.

Also keep in mind that crypto should only be a small part of your overall portfolio (usually around 5% or less). If you choose to invest in crypto, be sure to contribute regularly to the rest of your portfolio as well.

3. Do your research

Not all cryptocurrencies are created equal, so it’s crucial to do your research before buying. Some investments get a lot of hype and see their prices skyrocket essentially overnight, only to crash soon after.

The best cryptocurrencies are those with the greatest long-term potential. These investments will already have at least some real-world uses, with the potential to be widely adopted one day.

If you don’t know where to start, you can choose to stick with the biggest players in the crypto space: Bitcoin and Ethereum. While not perfect or guaranteed to succeed, they are two of the strongest and most popular cryptocurrencies right now – and they also have the best chance of surviving downturns.

Right now can be a fantastic time to buy cryptocurrency when prices are lower, but it’s important to make sure it’s the right investment for you. By considering your personal preferences and doing your research, you will be better prepared when you start investing.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a high-end consulting service Motley Fool. We are heterogeneous! Challenging an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and wealthier.

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