Cryptocurrency can be a rewarding investment, but it's not right for everyone. Cryptocurrency is famous for its volatility, as its price often fluctuates wildly from day to day. Even the most stable of them have experienced serious downturns.
This isn't to say that cryptocurrency is a bad investment. However, it can be risky.
Fortunately, there are a few ways to invest in cryptocurrency while keeping your money as safe as possible. These strategies can help maximize your earnings while minimizing your risk.
1. Invest in cryptocurrency stocks rather than tokens
Investing directly in cryptocurrencies themselves isn't the only way to gain exposure to the industry, and there's a safer option: cryptocurrency stocks.
A cryptocurrency stock is any company that's somehow involved in the cryptocurrency sector. It could be a company like Tesla, for example, which has made substantial investments in Bitcoin (BTC 0.28%). It could also be an organization like Nvidia that builds the technology behind the high-powered computers used during the mining process. Or it may be a company like Square that allows merchants to accept cryptocurrency as a form of payment.
If cryptocurrency eventually becomes widely adopted, any of these stocks could benefit. But even if it doesn't succeed, these stocks could still be strong long-term investments.
Before you invest, however, keep in mind that a company's involvement with cryptocurrency is only one part of the equation. Be sure you've done your research on the company as a whole because buying solid, long-term stocks should be your first priority. If those stocks are also involved in cryptocurrency, that's a bonus.
2. Only invest a small amount of money in more well-known cryptocurrencies
It can be tempting to sink a lot of money into the next up-and-coming cryptocurrency in hopes of becoming an overnight millionaire. But very few of those investments end up succeeding, and it's difficult to make money with this type of strategy.
A safer option, then, is to invest a small amount of money in cryptocurrencies that are more likely to grow over time. This can still be risky, as all cryptocurrencies are still highly speculative right now and it's impossible to know for certain whether any of them will still be around in a decade or two.
However, some cryptocurrencies are stronger investments than others. Bitcoin and Ethereum, for example, are some of the most popular cryptocurrencies with the strongest chances of surviving over the long run.
No matter where you invest, there are never any guarantees. So only invest money you can reasonably afford to lose and double-check that the rest of your portfolio is strong. Also, be prepared to hold your investments for the long run -- even if they experience short-term volatility.
3. Consider investing in a Bitcoin ETF
The first Bitcoin-linked exchange-traded fund (ETF) made its debut recently, giving investors the opportunity to gain exposure to Bitcoin without buying it directly.
The ProShares Bitcoin Strategy ETF (BITO -0.34%) doesn't invest directly in Bitcoin, but rather in futures contracts, which are derivatives of Bitcoin. This means the ETF's performance may not align exactly with Bitcoin's performance because it's not backed by Bitcoin directly. In general, though, if Bitcoin performs well over time, this ETF should perform well, too.
There are risks involved in investing in a Bitcoin ETF, so it's important to be aware of what you're getting into if you choose to go this route. However, if you're concerned about buying Bitcoin directly, a Bitcoin ETF can be an easier way to gain exposure to the cryptocurrency. Just be sure the rest of your portfolio is well-diversified and you're only investing as much as you can afford, as a Bitcoin ETF will still carry many of the same risks as Bitcoin itself.
Cryptocurrency can be a volatile investment, and even these safer options may not be right for all investors. But if you're eager to invest in cryptocurrency, there are ways to reduce your risk. By being strategic about how you invest in crypto, you can keep your money as safe as possible.