Should you dabble in crypto? A few questions to ask yourself

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Cryptocurrency is one of the most profitable but also the riskiest investment you can do right now. When the crypto market is at its best, you can get a solid return on investment. At its worst, it can be a volatile and risky cash dump that can lose you 95% of your initial investment.

With that said, crypto is a fantastic investment that you would want to dip into. Then again, are you ready for it? Here are a few questions you need to ask yourself before you dabble into crypto.

Are You A Risk-Tolerant Investor?

As we already said, crypto is not for the faint of heart. A good question you have to ask is if you have a good money mindset. Ask yourself if you are very tolerant of risk because crypto is both risky and volatile. Risk-averse investors can experience big problems that might lead to selling low.

The biggest cryptos, Bitcoin and Ethereum, can experience heavy dips in their value depending on world events. Legislative issues such as China banning crypto trading shaved off thousands of dollars in its value. This doesn’t mean it can’t bounce back, only that it can make nervous investors flinch.

At the same time, crypto is quite speculative with its value. Nobody knows its long-term viability, so its value relies mostly on what people believe its value is. If you’re not ready to experience fluctuations in the value of your investment, this is not for you.

Do You Understand How Cryptocurrencies Work?

Another smart question to ask yourself is about the level of knowledge you have of cryptocurrency. You don’t have to understand blockchain per se, but you need to know how cryptocurrency works, how it fluctuates, and what makes it tick.

Some investors do their best to understand the intricacies of the technology first. Others simply read on its investment viability. Regardless, visit forums and look for learning materials on the subject. Try to get as much information as you can from resources available online. Crypto platforms and crypto news sites are a fantastic way to stay ahead of the curve.

Learn from other successful investors. Go to meetups if you can and learn from those who know the system inside out. Listen to podcasts. Read the news and learn a few things about microeconomics and game theory.

Do You Have Emergency Funds?

In any investment, money is a vital part of your considerations. It’s crucial to ask yourself if you have enough money not only to pay for your investments but to keep yourself afloat throughout the duration of your crypto investment. If you don’t have enough finances or even an emergency fund, the answer is to wait.

Most smart crypto investors will treat the money they invested as an expense rather than a source of income. By doing so, they don’t rely on the gains that they get from crypto and can keep holding onto their investment until it’s prime to exchange. Relying on gains can be problematic, considering you can’t sell your investment if it’s lower than the value you bought it for.

Make sure you have an emergency fund on top of your consistent source of income. Build enough savings to cover 3 to 6 months of living expenses at the very least. Once you have that much, you’re ready to put some money into your preferred crypto.

Do You Have A Diverse Investment Portfolio?

Most successful investors create several investment channels for themselves to create a diversified portfolio. Like the old adage says, putting all your eggs in one basket is not a smart move. Ask yourself if you have a diverse portfolio of different investments to know if you’re ready to buy cryptocurrency.

Consider buying stocks, options, or even futures to create a portfolio that has both stability and liquidity in it. Consider adding index funds to create fixed-income within your portfolio. Adding fixed-income investments can help your portfolio hedge against the volatility of cryptocurrency and its speculative nature.

Continue building your portfolio with more stable investments. If you can maximize dollar-cost averaging to smooth out peaks, you can invest consistently in cryptocurrency, knowing that you have the capacity to buy and hold when the crypto values go down.

Do You Have A fear of Missing Out (FOMO)?

Are you investing in cryptocurrency because of all the success stories you hear over the internet? If you are, you are being directed by your fear of missing out (FOMO), which can endanger your investments. FOMO mostly relies on gut reaction, as well as seeing people earn thousands and wanting your share of the pie.

There’s nothing wrong with wanting success for yourself but you need to make sure every move you do is well-researched. Buying and selling cryptocurrency based on your instincts can be a quick way to lose all your money.

Know what you buy, its current trend, and the news around the specific crypto you’re trying to invest in. 24-hour gains are not indicative of the growth of the coin but rather its volatility. Don’t be influenced by people who are looking to pump the coin, only to leave you up in the air once they pull out of the market.

Are You Ready To Protect Your Crypto Investment?

One of the most powerful features of cryptocurrency is its status as a bearer asset, meaning whoever holds them is the presumed owner. With that said, you need to ask yourself if you are ready to protect your crypto wallet keys and make sure they’re consistently accessible only to you. By doing so, you protect your investment from potential hackers.

Most advanced cryptocurrency investors invest in third-party custodians to make sure their investments don’t go away. Investors who use digital currency wallets from exchange centers can be vulnerable to hacks. Hardware setups and key strings written on paper can be problematic too, as these are prone to loss or destruction.

Crypto is a matter of knowing what’s the best security for your investment. Are you willing to simply remember or write down your seed phrase? Are you comfortable with somebody else keeping the keys to your crypto investments? 

If you’re going with exchanges, consider the fact that they can get overloaded during volatile situations. If a cryptocurrency starts losing value, there are situations where you can’t withdraw. Consider every situation and make the most of the ups and downs of the situation you choose.

The Bottom Line

Investing in crypto is a big decision, so much that you need to ask yourself if you’re ready for it. Is it the right investment move for you right now? If it is, you need to start your research and prepare yourself for a powerful but volatile investment. If you’re not, don’t push your luck and come back only when you’re ready for a strong push.

Keep yourself informed. Research is a valuable asset before you start dipping your toes into cryptocurrency. Crypto is a great way to gain money if you know what you’re doing. Its calculated risks can be the start of a great financial investment.