Bitcoin (BTC -0.38%) is the giant in the world of cryptocurrency. It's the first player and the biggest. You can use it to make payments at more than 15,000 businesses worldwide. In fact, two countries -- El Salvador and Central African Republic -- even recognize it as legal tender. Investors flocked to Bitcoin last year as the entire cryptocurrency market soared past $3 trillion in market value.
This year's economic woes, however, have pushed investors into the safest of assets. And this means cryptocurrencies have suffered. You may be thinking of buying Bitcoin on the dip right now, but before you do, check out these three things the smartest investors know about crypto.
1. Today's economic troubles don't change the crypto story
Higher inflation and other economic problems have hurt people's wallets and companies' earnings. The current context has also weighed on demand for cryptocurrency.
In these times, investors shy away from risky assets. Why is crypto risky? Because it's rather new. And we don't know exactly what the landscape will look like a few years down the road.
But today's economic situation doesn't change development going on in the crypto world. For instance, developers continue to add projects on blockchains like Ethereum (ETH -0.41%). And people keep on paying with Bitcoin or use it to store value.
These platforms may not be as popular as investments at the moment, but the economic context isn't hurting their use cases or potential to redefine how business is done. So once these external troubles lift, cryptocurrencies could rebound rather quickly.
2. Regulation may be on the way -- but it isn't necessarily bad
The idea of cryptocurrency regulation may make some investors cringe. The fear is it could destroy the freedom the crypto market promises.
And regulation may be getting closer. This fall, the White House released a framework for the responsible development of digital assets. The document includes various points -- including potential efforts to foster stability in the market and ideas to fight illegal activities.
Of course, if the government goes too far in certain areas, eventual regulation could hurt cryptocurrency demand. But it's important to remember various experts probably will be involved in discussions. And future regulation may not result in extreme or destructive decisions.
Instead, regulation may actually set guidelines that reassure investors who've been hesitant to invest in cryptocurrency. A safer market doesn't necessarily mean a market with less freedom or opportunity for gains. So potential regulation may be positive -- and attract more investors to the market.
3. There's a way of safely investing in crypto right now
As mentioned, cryptocurrency is among the riskiest assets. But this doesn't mean a portfolio that includes crypto is high risk -- and that one that doesn't is a safe bet. If you want to get in on this innovative market while prices are down, there's a way of safely doing so.
First, you may consider the oldest and strongest players: Bitcoin and Ethereum. They've each lost more than 65% this year. But since their beginnings, they've climbed more than 5,000% and 38,000%, respectively. And as we can see in the chart, they've gone through difficult times in the past -- and rebounded.
Bitcoin Price data by YCharts
You have the option of buying fractional shares of these players. So, you don't have to make a major investment. To safely invest in these or any crypto players, don't invest more than you can afford to lose.
Also, balance your holdings with other assets considered safer -- for instance, stocks known for their dividend growth or shares of consumer staples or pharmaceutical companies that have solid earnings track records.
This sort of strategy will allow you to get in on a market that could bring enormous rewards over the long term. In the meantime, you won't lose any sleep.
