One of the most important aspects of cryptocurrency investing is finding the right exchange. It’s not necessarily a simple process.
First and foremost, investors must focus on security. Hacks and fraud have caused millions of dollars in losses over the years, with the Mt. Gox bankruptcy in 2014 a notable example.
The security problem has lessened over time. Investors have more options with better security. Still, security risks mean crypto bulls must stick with established, experienced exchanges.
Security aside, exchanges offer different fee structures. The availability of so-called “altcoins” varies widely. Some exchanges have minimal options beyond the likes of Bitcoin (CCC:BTC-USD) or Ethereum (CCC:ETH-USD). Others offer literally hundreds of coins.
Each individual cryptocurrency investor likely has an exchange that is best suited for their needs. The catch is finding it. These five exchanges are a good place to start:
- Coinbase (NASDAQ:COIN)
5 Cryptocurrency Exchanges: Binance.US
According to CoinMarketCap, Binance is far and away the leading exchange in terms of volume. Its U.S. arm, Binance.US, isn’t nearly as large, but still sees daily volume in the range of $1 billion.
Fees are reasonable: a 0.1% flat spot trading fee is lower than those of some other major platforms.
But there are some drawbacks for the U.S. platform. Binance.US doesn’t allow credit card deposits or margin trades. Other exchanges do.
Finally, Binance has a reputation for being somewhat daunting to newer traders; other platforms are more user-friendly for those learning the cryptocurrency market.
Again, not every exchange is perfect for every kind of trader. But low fees, solid volume and a good selection of altcoins makes Binance.US an attractive pick for US traders.
Coinbase is one of the largest exchanges out there, and it has a lot to offer.
Reviews generally mark it as perhaps the most user-friendly cryptocurrency exchange, particularly for less experienced traders. The altcoin selection is deep.
Most notably, Coinbase might have the best security features out there. 98% of funds are put in so-called “cold storage”, which significantly minimizes the risk of a hack on the exchange’s end. (Traders, of course, must properly take their own precautions.)
There is one big catch, however: investors have to pay for Coinbase’s attributes. It charges a spread of 0.5% on purchases and sales, plus additional fees. Conversions from fiat to crypto incur another 1.49% fee.
The question is whether investors are getting what they pay for. The answer to the question truly depends on the beholder. Lower fees at other exchanges might incur modestly higher, but still real, security risks. And ease of use, particularly for newer investors, might be worth the costs as well.
After all, there’s a reason Coinbase has one of the most anticipated initial public offerings in recent memory. Even with high fees, it’s gaining — and keeping — customers.
The good news about Robinhood is that its crypto trading is free. There’s some value for existing equity market customers as well in having both portfolios on the same app.
But there are downsides to Robinhood as well. The selection is limited: at the moment, the platform only supports seven cryptocurrencies. Residents of some U.S. states don’t have access at all.
That said, particularly for smaller traders focusing on the largest cryptocurrency options, the lack of fees is a big plus. Robinhood’s size and existing equity offering gives it experience with security.
There is a narrative that Robinhood “burned” traders in January by restricting trading in GameStop (NYSE:GME) and other Reddit stocks. That narrative isn’t really true: the platform faced capital requirements that forced its hand. Why else would it have damaged its reputation at such a critical and high-profile moment? Investors willing to ignore that narrative, and who are focusing only on the major coins, should consider the platform for their crypto needs.
eToro become one of the more popular options internationally before launching in the U.S. back in 2019. One reason why is that it’s not just a cryptocurrency exchange, but a social network.
Indeed, eToro has a “Copy Trader” feature, in which users can mimic the trades and portfolios of experienced, successful investors. The social experience is worthwhile. eToro has extensive educational features as well.
Here, too, investors do pay up for the privilege. Spreads for ETH-USD near 2%. And the altcoin offering is thinner than those of other major exchanges.
Experienced crypto bulls thus might want to go their own way, and build their own portfolios, at a lower price. For newer traders, however, eToro has a lot to offer.
Poloniex certainly is not as well-known or as large as other exchanges available to U.S. investors. CoinMarketCap rates the platform 12th in volume. But Poloniex does have attractive features.
First, it has a deep offering of altcoins: well over 100. And, second, its fees are lower than most. Spreads are just 0.125%, and lower for higher-volume customers.
Poloniex offers margin trading as well. Interestingly, it also offers users the ability to provide margin to other customers, providing a way to generate interest on funds held on the platform. Both strategies add risk to the endeavor, but could be suitable for aggressive, informed investors.
There is one big worry here: security. The platform has faced a few hacks, most recently in December. The most recent theft only accounted for about $4 million, but it’s a worry to highlight nonetheless. And it adds to the sense that Poloniex probably is best suited for those with deep experience in both trading and in security.
On the date of publication, Vince Martin did not have (either directly or indirectly) any positions in the securities mentioned in this article.
After spending time at a retail brokerage, Vince Martin has covered the financial industry for close to a decade for InvestorPlace.com and other outlets.