Market watchers should invest in bitcoin now that prices are down, says BK Capital Management founder Brian Kelly.

"Now, when everyone is saying ... it's over, that's it, bitcoin is dead, for the 175th time. Now's the time you start looking at it, on the buy side," Kelly, portfolio manager of the BKCM Digital Asset Fund, told CNBC on "Fast Money" Tuesday.

With uncertainty over the regulatory environment of digital currencies in South Korea and China, Kelly pointed out that cryptocurrency is in a "hand-off" period, moving from retail Asian investors to U.S., European and Japanese institutional investors.

"And that money is still coming in," he said. "The flows have not stopped."

"This is not the end of bitcoin," Kelly said, warning investors that buying the extremely volatile asset when prices are high can be dangerous.

"When we talk about bitcoin being up at $20,000, everyone is running around being all excited," he said. "Those are the times to be a little cautious."

Bitcoin prices have remained stagnant between $10,000 and $11,000 for the last week, not recovering from price highs of $19,500 in mid-December. The 45-percent drop in value has some market experts worried that the bitcoin bubble may have burst for good.

But Kelly said the falling prices were "incredibly healthy for the ecosystem. You shake out the weak hands. You get strong hands in there."

Kelly has three golden rules for crypto investors:

1. Only risk 1 percent to 5 percent of assets.

"This is a new technology," said Kelly. "Things break. This is the internet in 1995."

With an asset that fluctuates in price so much, the potential for growth is exponential — but so is the loss. If the investment doesn't work out, losses can easily be absorbed, Kelly pointed out.

2. Don't sell too soon.

Kelly recommended holding on to the currency, even if it's up 20 percent or 30 percent. "Once there's momentum, you hold onto this thing," he said.

3. Do not panic when coin drops 50 percent.

Understand the volatile nature of digital currency. "These things can move 20 percent to 30 percent in a day," he said.