5 Questions to Consider Before Buying Crypto in 2023

Thinking of buying crypto next year? Read this first.

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Key points

• Before buying any cryptocurrency in 2023, make sure you understand the risks.
• If the cryptocurrency you buy or the platform you use crashes, you could lose all the money you invested in it.
• Do your research, make an investment plan, and only invest the money you can afford to lose.

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Investments in cryptocurrencies skyrocketed in 2020 and 2021, with many top cryptocurrencies reaching all-time highs. The grandfather of all, Bitcoin (BTC) rose from around $7,000 in January 2020 to over $68,000 in November 2021. However, 2022 was a different story.

Prices began to decline after the Fed introduced economic tightening measures and investors moved away from riskier assets. The market then suffered a series of shocks, and prices fell further after each one. A notable example was the Terra Collapse (LUNA) network, which sent ripples through the market for several months to come.

As a new year approaches, some investors are hoping the worst is over and wondering if 2023 could be the time to buy crypto. Here are some questions to ask yourself before doing so.

1. Do you have an emergency fund?

Whether you buy crypto or invest in stocksmake sure you have a fully stocked emergency fund before you get started. If you have three to six months of living expenses hidden in a savings account, it will protect you against unexpected crises such as job loss or a medical problem.

Crypto prices have fallen dramatically in 2022. Many investors are hoping that prices will eventually recover. But if you’re forced to sell an asset when it’s worth 80% less than you paid, you won’t be eligible for any clawback. By building a emergency fundthe idea is that you will be able to leverage your fund rather than resorting to selling your investments or going into debt.

2. Are you here for the long haul?

There are no guarantees when it comes to investing, especially with cryptocurrencies. However, if you invest with a 10-20 year window, you can expect even dramatic short-term lows like the one we saw this year. To do this, you must believe in the long-term potential of blockchain technology and the individual projects you buy.

Investing for the long term means doing a lot of research and identifying the projects that have the best chance of succeeding. You might decide to stick with bitcoin and Ethereum (ETH), which are the two largest cryptos by market cap. If you gain experience, you could embark on projects that you think are useful and have a good chance of working well in the decades to come.

3. Will your cryptocurrency be part of a diversified portfolio?

I’m a big fan of cryptocurrencies and hope technology will transform the way we use money and manage our identities online. But right now, it’s a risky and relatively unregulated industry that has major hurdles to overcome. He might not be able to do that, and if he can’t, investors could lose everything.

Do not leave all about crypto. Many experts recommend that crypto make up no more than 5% of your investments, which is a good starting point. This way you can profit if the industry succeeds. But at the same time, if things go wrong, it won’t derail your finances.

4. Do you have a plan?

Be honest with yourself about why you buy crypto and what you hope to accomplish. Many crypto investors who bought during the 2021 crypto frenzy did so because they were afraid of missing out or wanted to make short-term profits. Unfortunately, this meant people were buying near the highs without fully understanding what they were buying.

Your plan should include the amount of money you are willing to invest, the types of cryptocurrency you plan to buy, and how long you plan to hold them. It is also crucial that you know why you are investing – what makes you believe blockchain technology could be successful? What triggers might cause you to change your hypothesis? This knowledge can help combat both panic selling and panic buying, as it gives you a solid foundation for decision-making.

5. Do you understand the risks?

Investing in cryptocurrency is extremely risky. With these risks come the potential for higher returns, but you need to understand what you’re getting yourself into. If you are someone who is at risk of losing sleep over a 20% drop in one day, crypto investing may not be for you.

Here are some uncomfortable truths about crypto investing:

• Cryptocurrency prices are extremely volatile. Prices could drop dramatically within weeks and not return to their former highs.
• Individual cryptocurrencies could fail. If any crypto you own crashes or turns out to be a scam, you could lose everything.
• Crypto exchanges and platforms can fail. If the crypto exchange you file for bankruptcy, you may not be able to get your money back, as there are few consumer protections.

There are ways to mitigate the risks, such as using a crypto wallet instead of leaving your assets on a crypto exchange. But you have to be prepared to spend time understanding how portfolios work and learning how to protect yours, which not all investors will want to do.

Buy crypto in 2023

We don’t know what will happen to cryptocurrency prices in 2023. Increased regulation is on the horizon, which will likely lead to near-term volatility, even as it strengthens the longer-term foundations of crypto. The current crypto winter shows no signs of thawing and prices could remain low for some time to come.

If you decide to buy, don’t do it because you hope to take advantage of a rally similar to what we saw in 2021. Do it because you understand blockchain and what it might do in the future. . And even then, follow the golden rule of crypto investment and only invest the money you can afford to lose.