Please ensure Javascript is enabled for purposes of website accessibility

Should You Invest in Cryptocurrency in 2021?

By Katie Brockman – Aug 26, 2021 at 6:30AM

Key Points

  • Cryptocurrency is a risky investment and not right for everyone.
  • There are several factors to consider to determine whether you should buy.
  • If you're considering investing, there are a few tricks to help keep your money safer.

Motley Fool Issues Rare “All In” Buy Alert

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Crypto prices are surging again. Is it time to invest?

Cryptocurrency is one of the most intriguing types of investments, and if you're on the fence about whether or not to buy, you're not alone. While only 14% of U.S. adults own crypto, according to a 2021 report from crypto exchange Gemini, around 63% of Americans classify themselves as "crypto curious."

While prices took a tumble earlier this year, many cryptocurrencies are gaining steam, once again. Bitcoin (BTC -1.05%), for example, is inching closer to $50,000 per token, its highest price since May.

Now that crypto prices are rebounding, is it time to invest? Here's what you need to know.

Bitcoin symbol with stock market chart behind it.

Image source: Getty Images.

How safe is cryptocurrency?

Cryptocurrency falls into the "high risk, high reward" category of investments. It's riskier than investing in stocks because it's still highly speculative at this point.

Stocks have a long history of growth over time, while cryptocurrency is still relatively new. While it could become mainstream and have real uses in society, nobody knows for certain whether that will happen.

That doesn't necessarily mean cryptocurrency is a bad investment or that you shouldn't buy it. If it does find real-life utility, it could potentially change the world -- and those who invested early on could make a lot of money. But it's important to consider your tolerance for risk before you buy.

If you're a risk-averse investor and are worried about losing money on your investments, cryptocurrency may not be the best fit for you. There's a chance that it may not succeed over time, and if that happens, you could lose all the money you invest.

Similarly, cryptocurrency is famous for its volatility. Bitcoin has lost roughly 80% of its value in the past, and Ethereum once lost nearly 95% of its value over the span of a year. If you know you'd lose sleep if your investments plummeted, crypto may not be for you.

Bitcoin Price Chart

Bitcoin Price data by YCharts.

On the other hand, if you're willing to take on a fair amount of risk for the potential to earn lucrative rewards, you may be a strong candidate for this type of investment. But if you do choose to buy, there are a few things to consider first.

How to invest safely

If you do decide to invest in cryptocurrency, it's important to be strategic about it. First, only invest money you can realistically afford to lose. There are never any guarantees when it comes to investing, but because crypto carries more risk than the average stock, it's especially important to avoid investing more than you can afford.

Also, make sure you have at least three to six months' worth of savings set aside in an emergency fund. Because crypto is so volatile, there's a chance prices could fall again after you invest. If you face an unexpected expense and have to cash out your investments, the last thing you want is to sell your cryptocurrency when prices are at rock bottom. When you have a healthy stash of savings, you can keep your money invested until prices recover.

Bitcoin chart with rocket going to the moon

Image source: Getty Images.

Finally, do your research when deciding which cryptocurrency to buy. Not all of them are created equal, and some are riskier than others. Bitcoin and Ethereum are the biggest names in the crypto space, but there are countless others.

The best investments are the ones that will continue growing over time, so be sure you're keeping a long-term outlook as you're researching -- not looking for cryptocurrencies that will help you "get rich quick."

Cryptocurrency is risky, but that doesn't mean it's a bad investment. Before you buy, make sure you can afford to invest and are relatively comfortable with volatility and risk. Crypto isn't right for everyone, but it could potentially be the right investment for you.

Katie Brockman owns shares of Bitcoin and Ethereum. The Motley Fool owns shares of and recommends Bitcoin and Ethereum. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Bitcoin Stock Quote
Bitcoin
BTC
$16,476.05 (-1.05%) $-174.05
Ethereum Stock Quote
Ethereum
ETH
$1,207.53 (-1.04%) $-12.63

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
356%
 
S&P 500 Returns
118%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 11/26/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.