Cryptocurrency is a digital currency that you can swap for your fiat currency. And like fiat currencies, cryptos come in different types, such as Bitcoin, Ethereum, Cardano, and more. You can buy these cryptos and use them like real money—pay for goods or services. Or buy them low, and wait for their prices to increase before selling them. However, before doing so, you must ensure that you’re ready for this venture.

That said, here are four signs you’re ready to invest in cryptocurrency:


1. You Conducted Due Diligence

One of the signs that you’re ready to invest in cryptocurrency is when you conduct due diligence and fully understand it. By doing so, you must have read all the information regarding your prospective crypto investment. That way, you can know precisely what you're getting into.

One way that shows you’ve done your research is when you have read into the crypto’s white paper. The white paper is proof that the token is legitimate. It also has the project's technology, purpose, and principles, allowing you to gauge whether it's a good investment.

Besides the white paper, you must also be familiar with the crypto universe by taking fun quizzes to test your knowledge. It's a way to gauge if you have understood the practical and perceived utility of the different cryptocurrencies. It also helps ensure you fully understand the technology and economics behind the crypto market.

2. You Have A High-Risk Tolerance

Another sign of whether you're ready to invest in cryptocurrency is when you have a high-risk tolerance. It means you must be willing and able to stomach a decline in the value of cryptos you've bought. That's because the crypto market is much more volatile than other markets; the value of coins can drastically rise and fall by the hour, if not minutes. With such, the value of your crypto investments can become worthless overnight.

If you can't handle such volatility, you may not be able to maintain your positions or stick to your investment when the market has significant declines. As a result, you may sell your cryptos at lower prices because of fear that the market may crash. And this would be a considerable loss.

Moreover, it would mean that you have a low-risk tolerance. Thus, you may have to invest in lower-risk investments, the ones with a less volatile market.

3. You Have Established A Diversified Portfolio

A diversified portfolio is also essential to start investing in cryptocurrency. This means your investment portfolio must contain assets like savings accounts, real estate, funds, bonds, stocks, etc. When you have a variety of assets, you can stabilize your results and improve your potential returns.

A diversified portfolio can also help reduce your portfolio's overall risk. For instance, if one market crashes, the other markets will balance your portfolio. That's because not all markets will crash simultaneously, especially if you choose the ones that perform differently.

With such, it may be best to have the following assets in your portfolio before venturing into crypto:
  • Savings Account And Certificate Of Deposit (CD): These assets can grow steadily based on contractual terms or interest rates. Moreover, they don't fluctuate in value as quickly as others do.
  • Real Estate: This asset could give you high commissions, but if you invest in physical property, it can be costly to maintain. However, they can appreciate as years go by, and you can sell them at a much higher price.
  • Bonds: Interest rates can rise and fall for these assets but offer a fixed payout of steadier returns.
  • Stocks: These assets may fluctuate over shorter periods but not as fast as cryptos. Moreover, stocks can yield high returns in the long run.
Each asset has its performance as an economy shrinks or grows, which means you can enjoy potential loss or gain. Some may fall or remain steady while other assets are rising rapidly. When you have assets that aren't correlated, you have higher chances of balancing your portfolio when you have crypto investments.

4. You Have A Well-Stocked Emergency Fund

Saving finances and having a healthy emergency fund is essential because crypto investment can be risky. As mentioned, you gain high returns from it, but you could also lose all of them in just a night. An emergency fund can help cover your expenses if the money you've used to buy crypto is meant for something else.

Moreover, you may be forced to sell your crypto assets when unexpected expenses arise. You may not have a choice but to sell them even if they're below the buying price if you don't have an emergency fund. With such, it's better to have at least three months of living expenses saved on your emergency fund.

Conclusion

You know you're ready to invest in cryptocurrency if you've understood how the crypto market works. That means you should've done your due diligence, identified risk tolerance, created a diversified portfolio, and maintained a well-stocked emergency fund. These are vital because they can help you make wise investment decisions.