The world of cryptocurrency seems like something dreams are made of. The world's first and biggest cryptocurrency Bitcoin soared past $60,000 this year. That's after trading at about $0.08 when it launched 11 years ago. But not every story will reach that point.

Cryptocurrencies offer the potential for big rewards -- but also for big losses. And that may be why you're unsure about investing in crypto right now.

Still, there are a few ways you can limit your risk and increase your chances of the highest possible upside at the same time. Here's a plan to consider.

An investor studies something on a laptop at home.

Image source: Getty Images.

1. Make crypto a small part of your portfolio

Even if it may seem tempting to leap right in at times, avoid betting the farm on crypto. As we've seen in recent days, losses can happen fast. Even the biggest players rapidly posted double-digit declines earlier this month.

Bitcoin Price Chart

Bitcoin Price data by YCharts.

But that doesn't mean you should avoid this exciting area of investment altogether. So how do you strike the right balance? By investing only what you can afford to lose.

I know that statement sounds menacing, but don't let it scare you away. Instead, let it guide you to making crypto a small part of your portfolio. This way, you'll allow yourself the opportunity to benefit from crypto gains -- but if the sector crashes, you only will have lost a limited amount. And if your stock portfolio includes a number of solid companies, you'll likely find yourself ahead overall.

2. Research, research, and more research

Just because you're investing a limited amount of money doesn't mean you should throw it away. Be sure to research cryptocurrency, in general -- and specific crypto players that may be a good fit for your portfolio.

I always look for the particular crypto's competitive advantage today and/or in the future. It's also important to look at adoption of the crypto. Are projects being built and actively used on the blockchain? Are more and more people investing in the crypto, and why? It's also key to look at a few practical elements such as how speedy a crypto platform is (or isn't) and whether it's energy efficient (or not).

3. Be selective

The idea of getting in early on a meme coin like Shiba Inu may sound great. But these cryptos are very high risk and price swings are volatile. It's also unclear if they'll actually serve much of a purpose in the future.

Instead, it's safer to focus on cryptos that offer more stability -- players that you want to hold onto because you believe in their platform. For instance, Ethereum already is a major player with its blockchain used for everything from finance to gaming. Another example of a potential winner is Cardano. Every blockchain update is based on peer review, and this ensures quality as Cardano grows its presence in the crypto world.

Of course, players that offer a bit more safety may not skyrocket in a few days. But over time, they may help you maximize your upside while avoiding the pain of drastic declines.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning 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 richer.