How to choose a crypto exchange

Investing in crypto assets is easy… just as long as you have access to a good crypto exchange.

Crypto exchanges effectively act as online wallets and brokers for investors. They allow investors to store their funds safely on a secured platform where they can access their balance at any time, and execute new trades.

Choosing the right crypto exchange is extremely important. The right exchange will make trading easy and quick, with instantaneous transactions and low fees. A poorly managed exchange can result in unpredictable and variable charges, as well as the risk of illiquidity, and even capital loss. Just ask investors in the defunct crypto platform FTX[1], which filed for bankruptcy in 2022 following allegations of fraud and mismanagement.

So how do you choose the right crypto exchange?

There are hundreds of cryptocurrency markets out there, offering a range of different incentives and services. However, before signing up to a new exchange, it is vital to do your due diligence to ensure that you are working with a professional outfit.

Security: Security should be your number one concern. At a minimum, your chosen exchange should offer two-factor authentication to minimise the risk of fraud or theft. Crypto exchanges can be targets for hackers, so it is also worth checking the platform’s encryption protocols and track record when it comes to attempted hacks. Crypto assets are not protected by the Financial Services Compensation Scheme (FSCS) so you may not be able to recover any funds lost due to hacking. This makes security all the more important.

Regulation: Crypto regulation is still a work in progress, but you can tell a lot about a company by the way in which it interacts with the regulator. For example, Moneybrain was one of the first crypto firms to be registered to trade under the Financial Conduct Authority’s Temporary Registrations Regime (TRR), until the TRR was shut down in late 2022.  It is currently domiciled in Jersey and registered with The Jersey Financial Services Commission as a virtual asset services provider schedule two business.

Leadership: Fintechs tend to be quite lean, which makes the quality of the leadership that much more important. Make sure you check the credentials of the executive suite and board members, and look out for relevant financial services experience, and a long track record in similar businesses. Look at their LinkedIn records, Companies House records, and any relevant news articles before making your decision.

Liquidity: Liquidity simply means that you are able to withdraw your cash or assets easily without having to give much notice. Before adding funds to a new crypto exchange, find out what the withdrawal procedures are. The price of crypto assets can change very quickly, so it is important to choose an exchange which can facilitate smoother transactions so you can get the best price for your coins.

Usability: There is no point in choosing a crypto exchange that you aren’t able to effectively navigate. If you do most of your financial management on your phone or tablet, look for an exchange which has a well-reviewed app, as well as a well-designed website. When executing trades, you don’t need poor UX slowing down your transactions or creating other issues.

[1] https://www.nytimes.com/2022/11/11/business/ftx-bankruptcy.html