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It might seem daunting to jump into investing in cryptocurrencies for anyone new to this sector. There are numerous exchanges and there are numerous cryptocurrencies to invest in. “Which exchange should I use?” is a question I get asked often. The correct answer to this question is actually rather nuanced, and have a number of variables. The various factors involved in determining the best crypto exchange is presented below.
1. Source of spending power
The first thing to consider is that there are 3 potential sources for your spending power in these exchanges. These are namely fiat money (cold hard cash), Credit Card purchases and other digital assets (like other cryptocurrencies and stablecoins).
Fiat Money: Whether an exchange accepts your fiat money or not will primarily depend on your location and the regulations in your current state/country. Often times you would find that some exchanges are able to accept fiat money directly as bank transfers, while others would not offer any means to use bank transfers to fund your account. If fiat money is your primary source of spending power, choose an exchange that is able to accept funding via bank transfers as these are often the most economical way of funding your account.
Credit Card: Some (actually most) exchange would allow you to purchase cryptocurrencies using a credit card. However, this is by far the least economical option. Exchanges typically would charge a credit card fee of about 3% or more for using a credit card to make purchases. Additionally, you would not be able to place limit-orders if using a credit card. You would have to make purchases at market-rate and if you are like me, this might sometimes mean hours of constantly monitoring the market to purchase a coin at a desired price. Additionally, not all cryptocurrencies available for trading in an exchange would be available for buying using a credit card. Also, if you are buying in any currency other than the US dollar, keep an eye on the exchange rates as your local currency will be converted to US dollar first on the back end and then used to purchase your chosen cryptocurrency. You would need to calculate for yourself if it’s cheaper to go with your bank’s conversion rate (purchase in USD and let your bank do the conversion) or to go with the exchange’s conversion rate (purchase in local currency and let the exchange do the conversion).
Digital Assets: If you already have cryptocurrencies in other wallets or exchanges, you could send them over to an exchange of your choice and use them to fund your purchases. But this requires you to have bought these cryptocurrencies in the first place using one of the other options above.
2. Referral Links
Some exchanges have generous bonuses for referrals. While often the rewards go to the referrer, some exchanges have decent bonuses for signing up with a referral link as well. (Note that you would have to be a new distinct user to the exchange) These often include discounts on trading fees, signing up bonuses and free upgrade to higher loyalty tiers. Such referral links can often be found on social media links of channels covering content on cryptocurrencies. Also, if you have friends already using these exchanges, you could use their referral links (which would benefit both you and your friend). Just in case you are a bit of a recluse and have few friends, I have left my referral link at the end of this article if you are in need of a referral link for additional bonuses while using various exchanges.
3. Deposit Fees
Nowadays most exchanges do not charge any deposit fees. (They get their cut from the withdrawal fee instead, see below)
4. Trading Fees
Trading fees will also likely differ from one exchange to another. However, some exchanges would give trading fee discounts based on loyalty tier. Some also give hefty discounts for paying the trading fees in their native cryptocurrency (Example: Using KCS in KUCOIN or BNB in BINANCE to pay for trading fees). Some may also allow redemption of discount coupons that would reduce the trading fees.
5. Withdrawal Fees (Transfer to other wallets)
Exchanges vary differently from one to another with respect to withdrawal fees. Some have rather high fees while others have low fees. Some even offer free withdrawals, up to a certain number of withdrawals per month. If your intention is to buy a cryptocurrency and then send it to a personal hardware wallet or to another exchange/protocol to get more yield, this may be an important factor for you. For most exchanges, withdrawal fees are likely different for each cryptocurrency. Also note that some exchanges charge a flat rate while others charge a percentage of the asset being withdrawn (with a minimum fee cap of course). Generally speaking, it is often better to pick an exchange charging a flat withdrawal fee rather than one that charges a percentage of the withdrawn asset.
6. Withdrawal Black outs
There are some exchanges that do not offer any means to transfer cryptocurrencies out of the exchange. Some claim to allow transfers but would have transfer options ‘temporarily’ unavailable for ‘technical’ reasons. Note that these are HUGE RED FLAGS! If an exchange does not allow for withdrawal, there is a chance that the exchange took custody of your money and never actually bought the cryptocurrency for you. It could be a front to a Ponzi scheme or worse. Never pick an exchange that does not offer withdrawal services. If you currently have cryptocurrencies in exchanges who claim to have ‘temporarily’ suspended their withdrawals (without any updates on their progress in restoring withdrawals), consider selling your assets and repurchasing them in other exchanges instead.
7. Fiat withdrawal (time delay)
Ideally, when you eventually sell your cryptocurrency and decide to cash out your profits, you would want your exchange to return your funds in a timely manner. Exchanges often give an expected processing time for fiat withdrawals. Compare these and pick one that best suits your needs. Also after you fund your account, do a test withdrawal to gauge the withdrawal timeliness for yourself. If the time taken deviates too much from the expected withdrawal times, it may also be a potential red flag.
8. Staking/Earning options
Some exchanges have a staking/earning options within the exchange which makes it easy to earn a yield on your cryptocurrency while holding it in the exchange. If you intend to stake and earn extra yield, you would need to consider the annual percentage yield (interest rate) on offer for your chosen cryptocurrency, the duration of the lock-up period and the minimum or maximum staking amounts required/allowed.
9. Security
Ideally you would want to pick an exchange that is completely secure and has never been hacked before. However, as cryptocurrency exchanges have vast amount of assets under their custody, the big exchanges are often prime targets for hackers. Unfortunately, such cyberattacks do occur from time to time. A new exchange with a clean record is not necessarily better than an old exchange that was previously attacked. The older ones are often well battle-tested over the years and often have much more robust security in place as a result of it. Also one could look back at how an exchange handled the cyberattack. Note if any lost user funds were refunded by the exchange. This sets a precedent and an expectation that the exchange would handle future attacks in a similar manner (although this of course can’t be guaranteed).
10. Promotions – Fee Waiver
Some exchanges run promotions with reduced fees for limited periods of times. These could include credit card fee waivers or trading fee reductions. Keep an eye on these promotions as they can potentially a previously undesirable exchange into one of your best options for a limited time period.
In conclusion, it's quite clear from the above factors that picking the best exchange is not a simple task. The optimal exchange may differ depending on different scenarios that you may encounter. However, by keeping the above points in mind, you would be better equipped to pick the most suitable exchange on your own.
Referral Links to exchanges
1. Binance - 10% off trading fees
2. Kucoin
3. Crypto.com - 25 USD in CRO when 25 USD in CRO is staked
4. Coinbase - 10 USD in BTC after purchasing 100USD in cryptocurrency
5. Gemini - 10 USD in BTC after purchasing 100USD in cryptocurrency
6. SwissBorg
7. Coinhacko
8. Hotbit
Disclaimer: I am not a financial advisor. The above article is purely for education purposes only. The article does not endorse any one exchange over another. Quoted examples are for demonstration purposes only. Please check with the exchange in question for most updated rates and fees.
Top image adapted from Crypto360: https://cryptocurrency360.com/
