Choosing the right cryptocurrency exchange
So you are interested in trading crypto, but how exactly do you go about doing this? There are several platforms that I looked at and will list in terms of ease of use, and accessibility to alt coins. Alt coins are alternative coins in the crypto market that use a block chain similar to BTC but might have a better code that enables the mining to be more efficient and the ledger updating to be not as congested; they might have special themes anywhere from creating complete anonymity with Bitcoin Dark, Gamer League coins, Pot Coins, etc. I will also list a few alt coins that actually have a product or something unique about them since many of you might be wondering why exactly would anyone ever dump millions into these coins that have no real value; and how did this ever become a $100B+ market?
The most straightforward is to stick with the major currencies (Bitcoin [BTC], Ehtereum [ETH], Ripple [XRP], and Litecoin [LTC]). If you want to avoid any complex procedures, I would go with Coinbase but they have enormous fees associated with their simplicity. I didn’t choose Coinbase since it was very limited in terms of the coins you could buy, fees were expensive, and from reading the community’s views the support didn’t seem strong. It looked like people could not withdraw money back into their account and some looked like they could not get their orders through properly; and this is a huge issue if the market is volatile and you could be losing large %s of your investment with each passing hour. However, if you want simplicity and something with a large userbase, this might be for you. I would only recommend this for people who want to do long term trading and hold their coins for a while.
There are several other exchanges such as Gemini (my friend who got me into this prefers Gemini, but again they are limited for trading alt coins) and Shapeshift. Some exchanges are only available in Europe or require complicated procedures for those of us in USA. I also looked at Bitfinex, Bitrex, and BitStamp before choosing Kraken. You can check them out and choose them if you see any advantages, but some of them didn’t have good UIs, or they were previously hacked and users lost their coins, or customers wrote bad reviews about them.
I ended up choosing Kraken, and here’s my logic for it. But before you think I am endorsing it, I think any exchange is fine as long as you know what you want. First: Kraken’s allowed trading several coins with USD. If you want to buy cryptocurrency that is not BTC, the method is kind of convoluted. First, you either have to buy BTC or Tether fiat currency (this basically converts your USD into USDT, which is a digital currency… which can then be used to buy coins). So in either case, you end up buying a “middle man” currency before you can buy your alt coins. This means you have to first buy BTC with USD, then send the BTC to some wallet or the other exchange where you buy the alt coins with your BTC, then convert back to BTC, move this back to Coinbase or whatever, and then convert back to USD, and retrieve that into your back account. Sounds complicated right?
Well, not really but it’s not worth it in my opinion for two reasons. There’s more work to do but if you are involved in this, you probably aren’t lazy. But more importantly, you are compounding the volatility and exchange fees. You might get fees for USD -> BTC and then BTC -> Alt coin and in reverse, which will add up. But… the more important point is that you are relying on two trades to go through for your trade. Let’s say the market is in panic mode and people are loading off their alt coins and you have a ton of alt coins. You see the market crashing, and want your money back. However, before you can get your money, you first have to convert your alt coins into BTC. Chances are if your alt coins are crashing, BTC is probably crashing and everyone is loading off their BTC. So now you have to wait for the BTC order to go through, and while this happens you might be losing money each minute (yep, it drops that fast). By the time you transfer from one exchange to another and convert twice, you might have lost a ton of money or missed a great opportunity. This is my reasoning for just going with Kraken which offers a decent amount of altcoins/USD. I might be completely wrong so do your own research!
Anyways back to Kraken and setup. So if you are in the US, there is already regulation setup for trading digital currency. This means you have to have your account verified. Online forums said that this could take anywhere up to 3 weeks but for me the process was fast, so just keep that in mind. If you want to get in and have to wait 3 weeks, you might have lost your chance so it’s better to have it setup than wait. There are several tiers of verification based on how much money you want to put in. To transfer USD into your account, you need Tier 3 verification. This means giving social security info, IDs, and a picture of yourself (I mean… this stuff is used to buy a lot of illegal content so I guess that makes sense?). This only took me 2 days to get verified but remember you NEED tier 3, despite the confusing description that makes it seem like Tier 2 is good enough. There is not ACH method to put money in, so you have to wire transfer which adds about $15 + $5 Kraken fee, so you might as well transfer a decent amount at a time rather than a tiny bit since the fees are large. Trading is pretty straightforward but sometimes the orders do lag.
In my next post, I will talk about the different alt coins and which ones you want to look out for, and why. I will hopefully do a crypto market analysis and when to buy/sell as I learn more from my own investments so you can avoid any mistakes/obstacles I face.