Jim Cramer Says to Buy Cryptocurrency Only Under These Circumstances

Should you heed the investing expert’s advice?

If you're trying to decide whether to invest in cryptocurrency, you need to take into account the unique risks -- and potential benefits -- of this newer asset class. While crypto investing has become increasingly popular among Americans, you'll want to be sure you're making informed choices before you move forward with putting your own money on the line.

Listening to the advice of financial professionals can help you decide if crypto investing is right for you. Jim Cramer is one finance guru whose advice you may wish to heed, as his investing tips are trusted by millions. Here's what Cramer has to say about when buying cryptocurrencies can make sense.

Jim Cramer says this is the only time you should invest in cryptocurrencies

Cramer is best known for hosting the show Mad Money, and he's provided lots of investment advice on his popular television program. In 2021, he addressed cryptocurrency investing and laid out the circumstances under which he believes putting money into virtual coins is an appropriate investment strategy.

Specifically, Cramer says it's OK to put your money into this investment “as long as you recognize the very real possibility that the whole investment case for crypto rests on the greater fool theory." If that's the case, he says, "you’ve got my blessing to speculate on it."

This theory suggests the price of cryptocurrencies will increase even if they are overpriced because there will always be a "greater fool," or a less experienced, less informed person out there who is willing to pay an inflated price for the assets.

By warning that cryptocurrencies could see rising prices not because of their underlying merits, but rather only because other people are foolish enough to buy them at higher prices, Cramer is cautioning investors about the serious risks of putting their money into this asset. The issue, of course, is that eventually you'll run out of "greater fools" and could be left holding the bag.

This does not mean Cramer is against crypto investing. In fact, he's purchased some virtual currencies himself including Ether to use to bid on nonfungible tokens. He's also said "you can use Bitcoin or Ethereum as a hedge against inflation" and invest up to 5% of your portfolio in it.

However, he simply wants to ensure that investors are aware of the potential risks, including the possibility that their assets could lose value because cryptocurrency investments are very speculative.

Is Cramer correct about cryptocurrency investing?

Cramer is undoubtedly correct that cryptocurrency prices may become divorced from the actual value of the coins, and may instead be based on people's perception of them. There's been ample evidence to suggest that things like celebrity tweets or social media attention can move the price of some of these currencies substantially.

But while there are some coins that may not be worth the hype, this doesn't mean all cryptocurrency investments will increase in value only if a greater fool is willing to buy. Anyone who is interested in buying into these assets should make sure they understand how to evaluate the fundamentals and that they are guided by sound investing principles when deciding how much of their money to put on the line.

By doing the right research and recognizing the risk, you can maximize the chances your investment will pay off while reducing the chances of the outsized losses Cramer has warned could come with such a speculative investment.