7 Important Factors in Choosing a Cryptocurrency Exchange
Since the evolution of cryptocurrencies, a lot of crypto exchanges have sprung up in several locations around the world. Some of these exchanges are set up by credible individuals with a view to transacting genuine businesses. However, some other exchanges are out there to scam unsuspecting members of the public who are unaware of their gimmicks. Therefore, it is important that as a potential investor or amateur investors, you should look out for some factors before settling for a crypto exchange.
MORE EXCHANGES NEEDED
In just the recent year, the level of growth experienced by blockchain currencies has been exponentially positive, thereby triggering massive interest by investors who now see Bitcoin and Altcoins as a goldmine. The surge in the number of participates in this market led to some exchanges declining to register new entrant in 2017. Currently, there are over 1500 coins in circulation with a net market cap of about $400 billion (Valued gathered from https://cryptomarketwire.com/). As the number of coins grew, there is no corresponding growth in the number exchanges that will accommodate potential investors. In essence, the crypto ecosystem needs more exchange!
DON’T BE A VICTIM OF SCAM
Entrepreneurs are business minded individuals who will leave no stone unturned to invest in viable businesses with a view to making huge profits. The crypto ecosystem is a lucrative business that can fetch any serious-minded investor mouth watery returns on investment. However, the owners need to put an effort in place to keep the platform safe from threats, hackers, and system errors. Lately, even the most reputable exchanges have been the soft target of hackers.
This article will guide you to take the right step when you are prepared to invest in the crypto ecosystem. It will help you decide which exchange you should invest in. A list of 7 important factors has been put together for your perusal when considering opening an account with a cryptocurrency exchange.
The following are the 7 important factors to consider when choosing exchanges;
1. Is the Platform reliable?
This is one of the most important factors to consider. During high volatility period, the way an exchange behaves goes a long way to protect investors’ funds. For instance, during the bear market period, you want to sell some of your coins, but your exchange does not carry out your request. One good way to verify how an exchange behaves during market is to carry out rigorous scourge on social media and on the internet to see what others have to say about their behaviour during a bear market.
An Assistant professor of finance lecturing at the Fox School of Business, Dr. Bora Ozkan, said that “What differentiates a fake exchange and a legitimate one is liquidity. It is completely a red flag if an exchange is not reliable during a bear market.” Also, John Quinn, a co-founder at the Stori Labs, aligns with the views of Dr. Bora, but further added that “given that blockchain is not regulated, Reddit and Twitter are a viable means to verify the reputation of a crypto exchange.”
2. Are regulatory threats an issue with the exchange?
It is imperative to verify whether regulators have passed a vote of confidence on an exchange before choosing it. For example, Coincheck, a crypto exchange based in Japan was recently hacked. News has it that the exchange was unregulated. An example of a regulated exchange is Bitstamp. It became a regulated exchange in 2016 after Luxembourg’s government gave it a clean bill of health.
3. Are there delays in resolving customer complaints?
Customer service is a huge challenge for most exchanges. Even the most reputable exchanges are fraught with customer service challenge. However, there is still every need to look out for an exchange that resolves customers’ issues within the shortest possible time. If you attempt to contact the customer service unit of exchange, and the only available option is through their FAQ page, without providing phone numbers and email, then it is a red flag.
4. Does the exchange have moderate fees, and is margin trading allowed?
Margin trading, as well as fees, are important when considering the activities of a crypto exchange. Some exchanges will display their fees on their website or on their whitepaper; other exchanges, on the other hand, will simply hide the fees with a view to charging users high. When perusing the exchange website, if you cannot find the breakdown of their fees, then you should consider that as a red flag. Also worthy of mentioning is that; find out whether the exchange is in compliance with SegWit because it will enable a reduction in transaction fees as well as confirmation times. Some exchanges that have complied with SegWit are Bitfinex and Coinbbase.
Margin trading is another factor to consider whether the exchange supports. Examples of exchanges that support margin trading are Poloniex, BitMEX, and Kraken.
5. Is the exchange secure?
The security of exchange is of utmost importance. Find out whether the exchange you intend to register with has been previously hacked or not. if it has been hacked before, the chances are that it can be re-hacked, except if the administrators of the exchange have upgraded their platform.
Another security concern you need to figure out is whether the exchange has other forms of user authentication during login. For example, most exchanges would demand a 2FA code each time you attempt to use their website. And if your IP address changes from the regular one to a new address, the system will verify you before you log in.
6. Coin pairs available
Most exchanges in the crypto ecosystem offer mostly Bitcoin and Ethereum. You should look out for exchanges that offer more coins in order to give you the opportunity to diversify your investment.
7. Ease of use
The interface, as well as the layout of exchange, should be clean and easy to use to avoid unnecessary confusion. You should look out for a crypto exchange that has a clean layout. This will make navigating the website easy for you.
A good exchange is a panacea for ripping the inherent benefit of the Cryptocurrency Market ecosystem. As stated earlier, the aforementioned factors will guide you to make an informed decision when you are about registering on a cryptocurrency exchange.