How to Choose the Best Crypto Exchange
Crypto exchanges are the touchstones of the crypto world. They’re where you go to buy, sell, or trade cryptocurrencies. There are many criteria that either make or break exchanges, and some of these may come as a surprise.
Before opening an account on any crypto exchange, review these 10 criteria:
- Security – 2FA, cold storage, multi-sig withdrawals
- Reputability – length of existence, history of breaches
- Legality or restriction of use in your physical location
- Regulatory bodies presiding over the exchange
- Fees including costs to transfer in and out
- Exchange features and user interface
- Liquidity and speed of execution
- Daily limits and time to withdraw
- Availability of tradable assets
- Multiple access points
You’re probably thinking this sounds like a lot, but nowadays one must perform a full schedule of due diligence before deciding to use a crypto exchange. Let’s explore why.
Crypto Exchange Security
Protecting your crypto assets is a top priority for any exchange. It’s important to understand how crypto exchanges store their funds, and how they keep them safe from malicious actors. At minimum, a reputable exchange should include 2-factor authentication (2FA), cold storage, and multi-signature withdrawals.
2-Factor Authentication
With two-factor authentication, you can protect your account using a one-time password (OTP) or a text message. This means that even if someone gets hold of your password, they will not be able to log in unless they also have access to the second factor.
Cold Storage
In the case of cryptocurrency exchanges, cold storage refers to keeping a majority of your funds in an offline wallet. The main reason for this is security: if an attacker gains access to your hot wallet and steals all of its funds, at least some funds will remain safe in the cold storage wallet because it cannot be accessed by hackers.
It is still technically possible for an exchange employee to access your funds even if they’re stored offline, so the best way to store funds you’re not using is in your own cold storage device.
Multi-signature Withdrawals
Multi-Signature withdrawals use multiple private keys to sign off on a transaction before it can be broadcast onto the blockchain. Multi-sig transactions make it more difficult for hackers to steal or move your funds in an unauthorized way.
With this control mechanism, even if one device (such as your phone) gets hacked or stolen, the thief can be stopped before he is able to transfer funds out of your wallet. The only way he may succeed is if he also has access to your email, exchange login and 2FA.
Crypto Exchange Reputability
The importance of reputation is not lost on the crypto industry and many exchanges are now investing heavily in building their reputations by publishing transparency reports detailing how they operate and how they store their users’ funds. In addition, some exchanges have gone further than this by creating safety funds that act as insurance policies against breaches or bankruptcies.
Here’s some things to look out for.
Length of Existence
A long history in the market means that an exchange has had time to build up a reputation for itself and establish trust with its users. This also enables us to examine its history and study how the company reacted to any breaches, thefts, insolvencies, or data leaks. The way an organization adapts after events like this can say a lot about whether or not it’s likely to happen again.
History of Breaches
Before choosing a crypto exchange, make sure they have been transparent about any past breaches/hacks. These incidents will indicate security was not high on their list of priorities, and should immediately raise a question on why you would trust them with your money now.
If an exchange does not produce regular transparency reports or attempts to bury the facts regarding security breaches, you should probably run away with your money.
Safety Fund
Some exchanges have now established their own safety funds, which they use to reimburse users in case of losses from fraud or theft. While this is not mandatory, having one shows that the company cares about its customers’ well-being and is willing to invest in improving security measures.
Safety funds can be built up by setting aside a portion of trading fees and other user-generated revenue. In fact, we can imagine a future where exchanges are obligated to do this as part of their fiduciary duty.
Examples of Exchange Breaches
One of the first crypto exchanges ever was Mt. Gox, which launched in 2010. It was also the first major exchange to collapse. The company was hacked several times, and lost nearly all of its customers’ money by 2014.
In 2017, BitGrail was hacked for 17 million Nano tokens (worth $195 million). The exchange failed to reimburse its customers, and eventually declared bankruptcy.
In 2018, Coincheck was hacked for $530 million worth of NEM tokens (XEM). The hack was so severe that it forced Japan’s Financial Services Agency (FSA) to intervene in the cryptocurrency industry.
In 2022, at least $1 billion in customer funds disappeared from the books of leading crypto exchange FTX as the company went insolvent.
Crypto Exchange Geo-restrictions
You’ll find that certain crypto exchanges or the services they offer can’t be accessed from your location.
Here’s a few reasons why an exchange may be limiting or restricting services in your area:
1) To comply with local laws
2) To protect the interests of their investors
3) To prevent money laundering and criminal activities
The government of a country or state may not allow its citizens to trade in cryptocurrencies. Conversely, a crypto exchange might not have the licenses required by law to operate within certain locations.
Despite the risks, some exchanges are not concerned about these issues and still offer their services to all countries. It will help to familiarize yourself with the local laws and regulations regarding crypto before opening accounts.
Regulatory Compliance
Regulatory bodies are responsible for the oversight and governance of exchanges. These regulatory bodies are tasked with ensuring the safety and security of their users, as well as protecting their assets against malicious actors.
These regulators also make sure that crypto exchanges comply with international laws such as KYC/AML laws and other regulations that apply to financial institutions around the world.
If a cryptocurrency exchange is acting outside of a regulated jurisdiction, or if the local laws and regulations lack stringency, we suggest avoiding it. An important part of due diligence is therefore finding out where the exchange headquarters are located.
In the United States, for example, the Securities and Exchange Commission (SEC) has issued a series of guidelines for cryptocurrency exchanges. These include:
- The need for exchanges to register with the SEC
- The need for exchanges to follow strict KYC (know your customer) and AML (anti-money laundering) procedures
- The need for exchanges to implement proper internal control systems
The SEC has also stated that it will not allow any exchange-traded funds (ETFs) to be green lit unless they can prove that they are safe for investors.
The Commodity Futures Trading Commission (CFTC), a US regulatory body in charge of derivatives, has also been very vocal about regulating cryptocurrency. Members of the commission have said they will continue to closely oversee crypto until they have a better understanding of how it works and how it should be regulated.
Read: Gary Gensler says crypto intermediaries should register with U.S. SEC.
Exchange Fees
Within the process of transferring money onto exchanges, performing trades, and withdrawing the funds again, you will run into a few types of fees.
Here’s what to look for.
Deposit Fees
When sending money from one crypto address to another, you’ll incur a deposit (or transfer) fee. This can be a considerable amount in some cases, but you can minimize the cost by using more efficient networks. In general, the highest fees will be on the BTC and ERC networks, but newer chains like TRC and BSC offer much lower fees.
Trading Fees
A trade fee is charged after you place an order on an exchange and it is executed in the open market. This is typically measured as a percentage of total volume traded, although there are some exchanges that charge flat rates instead of percentages.
There is also a difference between limit and market orders. Any time you want to execute a trade immediately (at market), it will carry a higher fee than a limit order.
Withdrawal Fees
A withdrawal fee is similar to a deposit fee. It is normally a flat amount based on the asset and network used for transfer. If you’re transferring funds between wallets within the same exchange, there is typically no withdrawal fee at all.
F/X Fees
Generally crypto exchanges operate on a US dollar standard, so if you’re transferring in funds from a bank account denominated in foreign currency, you’ll encur an exchange fee. This is also the case with credit cards.
Your decision to trade on one exchange over another may be affected by the difference in fee structure, so it’s worth doing this research ahead of time.
Exchange Features and User Interface
Not all crypto exchanges perform the same functions. Advanced users prefer a variety of trading formats with advanced order types. For new traders or those just looking to buy some crypto, basic functionality will do just fine.
Those looking to trade derivatives or options will need an exchange that supports these advanced functions. Binance, Bybit, and Phemex are all examples of exchanges that support both spot and derivatives trading.
The user interface is also important. Thankfully this has come a long way in recent years, and most exchanges are easy to navigate. You should be able to see a price chart along with order depth and and market/limit order functionality in most cases.
Liquidity and speed of execution
Liquidity refers to how quickly an asset can be sold at any given time without affecting its price too much. The higher the liquidity of an asset, the better because this means there are many people who want to buy that asset at all times.
The more liquid an asset is, the easier it will be for you to get rid of it quickly if necessary (for example when prices drop suddenly). We suggest sticking to exchanges that regularly appear in the top-20 on this list of exchanges by volume if you plan to trade actively.
Crypto Exchange Daily Limits and Time to Withdraw
Most cryptocurrency exchanges have set daily limits on withdrawals. This is usually done in order to mitigate security risks or events which could adversely affect the exchange’s liquidity. Said limits may also depend on the location and verification status of a user. You will generally be awarded with higher limits after completing KYC.
Exchanges often change their daily limits, so it’s a good idea to look at the website or perform a Google search to find the updated policy.
Withdrawal processing times are dependent on exchange clearing and security mechanisms. Here’s some examples:
| Exchange | Withdrawal Time |
| Bitfinex | Up to 12 hours |
| Phemex | Up to 8 hours |
| Crypto.com | 2-3 hours |
| Binance | 30-60 minutes |
| KuCoin | 30-60 minutes |
| Huobi | 30-60 minutes |
| Bybit | 30-60 minutes |
| Kraken | 10-20 minutes |
| Bitget | 5-10 minutes |
Availability of Tradable Assets
If you want to actively trade cryptocurrencies, choosing an exchange with a wide array of tokens is beneficial.
Here’s a table showing how many tradable assets some of the top crypto exchanges offer:
| Exchange | Number of coins/tokens* |
| Binance | 350 |
| Bitfinex | 187 |
| Phemex | 234 |
| Bitget | 386 |
| Bybit | 100 |
| Kucoin | 600 |
| Huobi | 400 |
| Kraken | 120 |
| Crypto.com | 250 |
*these numbers often fluctuate so treat them as estimates
Multiple access points
Trading should be done with full commitment and attention to the actions being taken. For that reason we advocate against mobile trading whenever possible. It is easy to make mistakes, enter orders incorrectly, or act impulsively. However, having mobile access to an exchange has its benefits.
Most of the reputable crypto exchanges are now offering mobile apps for phones and tablets. These are helpful for tracking prices on the go and receiving important alerts. For some users, mobile access will be an important decision when deciding which exchange to use, so it’s worth including in this list.
Final thoughts
We hope this foray into choosing the best crypto exchange has helped you narrow down the most important features and check marks to look for.
For us, security and reputability are at the very top of the list and there’s nothing that can replace these qualities. Fees, liquidity, exchange functionality and user interface are also key, especially if you desire to grow as a trader.
Remember that only a modest portion of your investing capital should be stored on crypto exchanges due to the risk associated with third-party custody. Always manage your risk and learn technical analysis to guide your trading decisions. Our Bitcoin reports and weekly market updates are a good place to start!
Related Articles
Getting Started With Phemex – A Beginner’s Guide
