The Banking Executive Magazine - November 2022 Issue

How To Pick The Best Crypto Exchanges? making crypto purchases can vary widely among currencies. Investing in cryptocurrency is risky, so it is im- portant not to invest needed money. Various ways for investing in crypto currencies include: • Buying cryptocurrency directly: cryptocurrency can be bought di- rectly by using a cryptocurrency exchange. • Investing in cryptocurrency com- panies: The cryptocurrency com- panies may have partial or total focus on cryptocurrency. • Investing in cryptocurrency-fo- cused funds: This is an alternative option to investing in individual cryptocurrency companies. • Investing in a cryptocurrency Roth Individual Retirement Account (IRA): This investment option is chosen to get the tax advantages of an individual retirement account (IRA) and to get more secure stor- age for cryptocurrency holdings. • Becoming a crypto miner or val- idator: The most direct way to in- vest in cryptocurrency is to mine it or act as a validator in a crypto net- work. Cryptocurrency miners and validators earn rewards in crypto, which they can either hold as in- vestments or exchange for another currency. INVESTING USING A CRYPTO EXCHANGE A crypto exchange is a marketplace to buy and sell cryptocurrencies, like Bitcoin, Ether or Dogecoin. Cryp- tocurrency exchanges work like other trading platforms. They provide users with accounts to create differ- ent order types to buy, sell and spec- ulate in the crypto market. Some crypto exchanges support ad- vanced trading features like margin accounts and futures trading, al- though these are less commonly available to users in the United States. Others have features like crypto staking or crypto loans that allow users to earn interest on their crypto holdings. Some exchanges offer educational materials to keep users up to date about the crypto world. CRITERIA TO CHOOSE CRYPTO EXCHANGE According to Forbes, important con- siderations when choosing a crypto exchange are: • Accessibility: Some locations may prevent users from buying and sell- ing crypto on certain exchanges due to state or national regulations. Some countries, like China, have banned citizens from accessing crypto exchanges. • Security: Cryptocurrency is not backed by any central institution, and cryptocurrency holdings are not protected in the same way as money in the bank or traditional investments. Some exchanges have insurance policies to protect the digital currencies users hold within the exchange from hacking or fraud. Coinbase, for example, has an insurance policy worth $255 million. Others, like Kraken, rely on their security practices to pro- tect clients rather than insurance policies. • Fees: Exchange fees may be a fixed price, but are often a percentage of the trade. Some exchanges, like Cash App, charge fluctuating fees based on price volatility. Fees are often charged per transaction, and can differ whether the user is the seller or the buyer. There may also be different fees depending on the currencies traded. • Liquidity: Exchanges should have enough trade volume to ensure users’ holdings are relatively liquid, and can be sold when needed. A high trading volume on the ex- change means that users have a higher chance of buying or selling their crypto holdings at the best price. • Coins offered: Not every exchange offers each of the thousands of cryptocurrencies that exist. ISSUE 167 NOVEMBER 2022 the BANKING EXECUTIVE 9