Post Views: 221
Want to get in on the world’s greatest asset class? No, you don’t have to buy any real estate. And no, we aren’t talking about the latest stocks.
While these investing methods have proved reliable over the years, their returns pale in comparison to the cryptocurrency market. This brand new asset class launched with Bitcoin in 2009 and is seeing incredible returns on a regular basis.
Sometimes in a matter of days, you can see double and even triple-digit returns. So if you want to start increasing your wealth, you need to find the best cryptocurrency exchange, make an account, deposit some money, and purchase the right coins.
But the fintech industry is exploding with new exchanges all the time. How do you pick the best place to buy cryptocurrency? We cover all of that and more below.
How Exchanges Work
A cryptocurrency business that allows you to buy and sell cryptocurrency directly with other people is known as an exchange. These are similar to stock exchanges.
The exchanges act as brokers. That means that they facilitate transactions between buyers and sellers and take a fee for doing so. So you aren’t buying from the exchange in most cases.
You can place buy orders for a particular currency, and when a seller places a sell order at the same price, your transaction will occur. Of course, you can buy and sell immediately at market price, since there are always buyers and sellers.
Placing a market order can sometimes experience slippage. For example, the price of a coin may be listed at $5.00, but by the time your order goes through, the price may jump to $5.15.
Price fluctuations are constant with cryptocurrency, as they are exceptionally volatile. If you want to buy or sell at a specific price, choose an exchange that offers limit and stop orders, along with market orders.
Normally, a cryptocurrency exchange will have a simple version of the marketplace, and an advanced version of the marketplace. The advanced version has more ordering features and information that is useful for active traders.
The simple version is good for those looking to quickly buy a coin and hold onto it.
Centralized vs Decentralized
There are two main types of crypto exchanges; centralized exchanges (CEX) and decentralized exchanges (DEX). Centralized exchanges are the most common, particularly in the US.
These are exchanges regulated by the government, ensuring they follow legal and financial guidelines just like any other financial institution in the country.
In order to act as a centralized exchange, they need to complete KYC or Know Your Customer. This is the process of an exchange verifying the identity of those creating new accounts. You’ll need to submit a copy of your ID, as well as a picture of your face.
Only then can you fund your account and begin purchasing crypto. These rules help to prevent fraud and illicit activity using crypto.
The benefit of using a centralized exchange is knowing you are using a safe, regulated platform. The company isn’t going to run off with your money. But you usually pay higher trading fees in order to use centralized exchanges.
Centralized exchanges also limit the number of tokens they offer. They take their time to review, vet, and offer tokens on their exchange, ensuring they only allow reliable cryptocurrencies to their users. So you aren’t going to buy new or emerging coins on a centralized exchange, which may cause you to miss out on the gains, and the risk, of many altcoins.
However, with the coins a CEX offers, there is usually more than enough liquidity to ensure you can get into or out of any trade.
Unlike a centralized exchange, decentralized exchanges do not act as a centralized authority. Rather than a group of people in charge of the exchange, the DEX is governed and maintained by blockchain technology and smart contracts.
They allow for true peer-to-peer transactions, without a broker or intermediary. And there is no KYC required, so anyone can trade on a DEX.
You cannot fund a DEX account with fiat money. You’ll need to transfer cryptocurrency into your account from elsewhere. Thus, you’ll likely need to use a CEX first, in order to fund your account on a DEX.
When using a DEX, you’ll find many more cryptocurrency offerings. It’s very easy for new coins to be listed on a DEX, allowing you to get in early. But the risk with new coins is very high. And if it drops to zero, you are on your own.
Popular decentralized exchanges include Pancake Swap, Sushiswap, Uniswap, and many others.
But most people, especially those new to cryptocurrency investing, stick with the safety and reliability of centralized exchanges like Coinbase, Kraken, or Binance.
Once you are comfortable investing in crypto, it might be worth testing out a DEX as well. Just make sure to only invest money that you are willing to lose.
Choosing the Best Cryptocurrency Exchange
When choosing a centralized cryptocurrency exchange, there are many factors to consider. All crypto investors have an opinion on exchanges, and they are usually very strong. Here are your main considerations.
Available in Your Country and Region
Centralized exchanges are those that are regulated by governing bodies. This means they operate within a particular jurisdiction.
Most US-based exchanges only allow users from the US, since regulations are different for people in other countries. But even if an exchange is based in the US, a particular state or jurisdiction may still limit or ban an exchange.
Some exchanges that were founded internationally have now set up shop in the US as well. For example, Binance was originally founded in China by a Canadian developer. But currently, they are headquartered in the Cayman Islands, due to friendly regulatory laws.
However, for Binance to service US users, it created a separate division, known as Binance US, to operate specifically in the US. It’s headquartered in San Francisco and is technically a separate exchange from the original Binance, but with fewer offerings.
Before choosing an exchange, make sure it’s available where you live, or you could find yourself in trouble down the road.
Has the Coins You Want
Every exchange has the ability to list and delist coins of their choosing. In order to protect their users, and to protect themselves from angry users, centralized exchanges don’t list coins until they have sufficient history.
They don’t want to list a brand new coin that is experiencing rapid growth, because there’s a good chance the value of the coins can drop to zero after the coin founders or early adopters cash out and walk away.
So you’re only going to find reputable coins that are going to stand the test of time on a centralized exchange. Today this includes many of the top-performing altcoins.
However, there are certain coins that exchanges choose to delist for various reasons. Bittrex recently delisted the privacy-focused coins Monero, Zcash, and cash, as they are commonly used for illicit activities. The exchange doesn’t want to associate with these coins or empower these activities.
Along with the specific coins you want to buy, you want to consider the trading pairs as well. Just because a specific coin is available doesn’t mean you’ll be able to trade your US dollar for it.
Some altcoins can only be traded with stable coins like USDT or with coins that everyone has like Bitcoin or Ether. For these coins, you’ll first trade the US dollar for the base currency you need, and then trade that for the altcoin that you want, adding a step.
Well-known exchanges in the US usually allow you to trade the US dollar against all or most of the popular coins to make it easy.
Security is another huge concern when choosing an exchange. Crypto exchanges are the main targets for hackers. That’s because exchanges have lots and lots of crypto on hand all the time.
Many of the people buying crypto on exchanges will leave that crypto sitting in their exchange account. While in theory, this should be safe to do, history tells us it’s not that safe.
Users have the responsibility of protecting their investment. If you plan to buy and hold, you should transfer your newly purchased crypto to an offline wallet for safekeeping.
Regardless, choose an exchange with reliable security. Coinbase is one of the largest and most trusted exchanges in the US. In fact, the company recently went public, furthering public trust in the company.
But it’s still prone to attack. As recently as March 2021, hackers have been able to get into Coinbase, stealing from 6,000 users. The benefit of a centralized exchange such as Coinbase is that they took steps to restore the account, and the funds, of affected users.
With a decentralized exchange, you’d be on your own in this situation.
Most exchanges have fallen victim to hackers at least once. But this should be very, very uncommon with the exchange you choose.
Every exchange is going to charge fees in order to use the platform. This is typically a transaction fee each time you buy or sell crypto.
Normally, they are small enough to go unnoticed. Even so, some exchanges charge considerably more than others.
Coinbase, for example, has some of the highest fees in the US. Pricing is tiered, so the bigger your transactions, the less your fees will be. But if you place a buy or sell order worth less than $10K, you’re going to pay a 0.5% transaction fee.
Contrast this with Binance, where you will pay 0.1% as a transaction fee. And if you hold BNB in your trading account (Binance’s native token), you’ll receive a trading fee discount, lowering your transaction fees to 0.075%.
Fees are especially important for those who make multiple trades per month, as they can really add up.
Convenient Payment Methods
Another thing to consider when choosing an exchange is the accepted payment methods, or how you can deposit fiat money into your exchange account. Most exchanges will let you deposit money by linking…