Cryptocurrency has been on a wild ride over the past year, experiencing both record highs and harsh lows.
While crypto prices are currently in a slump, that could make it a smart time to invest. The price of Bitcoin (BTC -1.13%), for example, is currently down roughly 40% from its peak in November. If you've been waiting for a more affordable time to invest in the most expensive cryptocurrencies, now may be the right moment.
However, it's important to be strategic to keep your money as safe as possible. Before you buy, there are a few things to keep in mind.
1. Consider your risk tolerance
Some cryptocurrencies have seen explosive growth, and it's possible to make a lot of money with the right investments. It's important to remember, though, that all cryptos are still speculative at the moment, making them a higher-risk investment.
Even major cryptocurrencies like Bitcoin and Ethereum (ETH 3.97%) are not guaranteed to succeed, so consider how much risk you're willing to tolerate before you invest. If you're risk-averse or can't afford to take a gamble with your money, crypto may not be the best fit right now.
2. Make sure you have a healthy emergency fund
Regardless of where you're investing, it's wise to have at least six months' worth of savings stashed in an emergency fund. But when you're investing in crypto, it's even more important to have some savings socked away.
Because crypto is riskier, there's a greater chance that you could lose money. If all your savings are tied up in your investments, that could spell trouble if crypto prices sink and you face an unexpected expense.
With a solid emergency fund, though, you can rest easier knowing you can still pay the bills regardless of how your crypto investments are performing. It also means that even if you do incur an unexpected expense, you can avoid tapping your investments -- which can help them grow faster.
3. Be prepared for more volatility
Cryptocurrency is one of the most volatile investments out there, and even if it does succeed over the long run, there's a very good chance we'll see more turbulence along the way.
Smaller cryptocurrencies are the most likely to experience volatility, but even the big names like Bitcoin have seen massive ups and downs. In fact, Bitcoin has lost more than 80% of its value on several occasions over the years, and the road ahead could be rocky as cryptocurrency continues to find its footing.
Keeping a long-term outlook is key when investing, and if you choose to buy crypto, try not to get too hung up on the day-to-day fluctuations. But it is important to prepare yourself for more volatility and consider how much of it you can comfortably tolerate.
Cryptocurrency can potentially be a lucrative investment, but it has its risks as well. It won't be a good fit for all investors, but by considering these three things before you buy, it will be easier to decide whether it's right for you.