The cryptocurrency market has evolved from meager beginnings embodied by private transfers of little-known digital assets by geeks between each other into a multi-billion dollar industry that is attracting the attention of the global economy’s heavyweights. The laughing stock of the programming community back in 2013 is now a recognized asset class with the highest yield and volatility of any other financial instrument in the history of global markets.
Cryptocurrencies have dominated the global financial arena, becoming highly sought-after assets that banks, investments funds, institutional and retail investors are vying for. But the entire market of digital assets would be nothing without the combined power of dedicated crypto websites and coin exchanges. As a fully digital economy, the decentralized asset ecosystem is reliant on cryptocurrency exchanges that act as gateways into the world of fiat and as off-ramps for fixing profits. Cryptocurrency exchange platforms provide investors and traders with the instruments and functionality needed to manage, transfer, trade, buy, sell, withdraw, and monitor the cryptocurrency market and its dynamics.
Some Misconceptions About Cryptocurrency Exchanges
Before even making entry into the crypto market, anyone willing to partake in its activities and trading must first acquire the necessary knowledge to decide whether the endeavor is worth their time, resources, and energy. The general atmosphere of either glee or panic that envelops the crypto market is generated by the news surrounding it. As such, the announcements of multi-million dollar earnings on one project or another are not sufficient grounds for inexperienced investors to believe that such success awaits them.
The cryptocurrency market is fully reliant on crypto sites and exchanges, with the largest crypto exchanges providing the best terms and opportunities. However, the abundance of fraud and scams among smaller crypto coin exchanges is frightening and results in considerable losses for investors. Reports indicate that the amount of scams after the start of the pandemic has increased by 1,000% after the influx of new and inexperienced users to smaller, local crypto exchanges with the devaluation of many national currencies.
This leads to the conclusion that prior in-depth analysis of the crypto exchanges available on the market and careful selection based on a set of critical criteria is vital before the start of trading cryptocurrencies.
Types of Crypto Exchanges
There are two major types of cryptocurrency exchange platforms – centralized and decentralized – each with its advantages and shortcomings.
Centralized platforms are represented by the biggest crypto exchanges on the market and are the most trusted and common type of gateways for cryptocurrency traders. Centralized exchanges have a number of advantages, including:
- Legality, as they are regulated by local legislation and comply with AML, KYC requirements, thus bearing a measure of responsibility before their clients;
- Security, considering the amounts of funds stored on their accounts, which automatically imply the provision of advanced protection measures;
- High liquidity, given their popularity;
- Lower fees, based on the number of traders and stiff market competition.
Among the disadvantages of centralized exchanges are factors that are considered to be contradictory of blockchain virtues, such as:
- Lack of anonymity, since all users have to comply with KYC and AML requirements and provide identification;
- Centralized storage of assets, meaning that user funds are stored on exchange hot wallets and the private keys are in the custody of the exchange.
The other type of exchange is decentralized platforms that have become more common on the market in the last two years with the development of technologies allowing their deployment. Among the advantages of decentralized exchanges are:
- High security, given the distributed nature of their nodes that prevent hacker attacks;
- Decentralized storage of funds, meaning users retain control of their wallets and private keys;
- Chance at anonymity at the expense of legality.
Though more technically advanced than their centralized counterparts, decentralized exchanges are still nascent and their on and off-chain order books may not be interoperable, forcing them to resort to layer 2 solutions. Combined, this leads to lower liquidity.
In general, both decentralized and centralized exchanges boast similar functionality and have the necessary levels of liquidity to attract traders.
Factors To Consider When Selecting a Cryptocurrency Exchange
There are a number of criteria that traders, especially novice traders, should consider when starting their search for a cryptocurrency platform for their trading operations.
Reputation
Any search of a crypto exchange platform must start with an analysis of the available major players on the market. Once a shortlist of candidate platforms has been selected, the user must start reading forums, reviews, and user feedback about the exchange’s reputation. An important factor in reputation is the number of times the platform was hacked. Another is its response times to user requests. More important are the reviews about the platform’s overall market reputation and ranking in lists of top exchanges.
Reputation means much since real users dominate over any fake reviews that glorify exchanges, and realistic negativity always prevails, showcasing either an exaggerated or realistic state of affairs, depending on how disgruntled the reviewing user is.
Security
The second important factor to consider is security. Modern exchanges employ an array of security mechanisms, such as 2FA, Google Authenticator, advanced password generators for users, firewalls, and cryptographic mechanisms. However, users must first and foremost pay attention to the number of times there were breaches on the platform, because no matter how secure the technology, the human factor involved on the part of the exchange’s employees is just as important. It is also critical to consider how many user-level security layers the exchange provides, including 2FA, push notifications, email tethering, and others.
Interface
The interface is the most important user-end factor to consider since it is the main instrument traders will be using. The convenience of the trading interface’s layout, its versatility, and its customizable nature play an important role in exchange selection. Many modern exchanges have proprietary interfaces, while others adopt those of TradingView or other popular software packages.
Users must also consider the array of instruments provided by the exchange. Most platforms offer the standard toolkit for traders, including real-time graphs, MACD, Fibonacci, and other technical analysis instruments. However, some go a step beyond and provide more advanced instruments like automated trading bots, notification options, portfolio management modules, and much more. The combination of instruments available and the convenience of their layout is the most important factor to consider when constant trading is to be undertaken.
Commissions
All traders have to pay fees for their trades on crypto exchanges. The average fee ranges anywhere from 0.1% to 1% or more on most crypto exchanges, depending on trade types and market conditions. The fee factor is very important to consider since larger trades will result in considerable commission offsets. Usually, the larger the exchange, the lower the commission.
Support
User support from the exchange is vital and extends well beyond response times in support chats. The number of languages supported, the adequacy of responses, the availability of an on-site knowledge database and learning center, as well as constant provision of market updates and digests are important factors that affect user experience.
Quality exchanges also provide demo modes that allow new users to onboard faster and test the functions and features of the platform with virtual money before depositing any amounts of real funds.
Gateways
The availability of connections to bank cards and popular withdrawal gateways like PayPal or other e-wallets, as well as Visa and MasterCard, are vital factors. Users will need to withdraw their assets, and the ability to do so through traditional means determines whether traders will be able to have access to their profits or assets after depositing them on the platform.
Other Factors
Among the other factors that users should consider while making their choice is the global timeframe of the platform. Immediate access to daytime trading and nighttime trading is important for taking advantage of momentary price volatility. Other factors include the list of traded assets, the liquidity provided, DeFi opportunities, the ability to operate via messengers for convenience, the speed of order execution, initial deposit sizes, and others.
Going Solid
Among the most reliable crypto exchanges on the market is ChangeNOW that provides a convenient interface and smooth onboarding for all users. The platform offers a broad range of assets, including more than 10,000 currency pairs with an ever-growing list of offers. ChangeNOW requires no registration and has no hidden fees, allowing users to rely on an easy-to-read interface and real-time price monitoring for instant trade execution.
Deposits on ChangeNOW start from as little as $2 and exchange operations require under 2 minutes, making the platform one of the fastest on the market. ChangeNOW supports all the major gateways, including Visa and MasterCard for fast and easy fiat-to-crypto purchases or transfers, ensuring that users can cash out their funds with ease.
How To Invest In Cryptocurrencies
It is often said that investing in the cryptocurrency market is more of an art form than a mathematical science. The proponents of such a statement claim that high volatility and unpredictability are the main factors playing against the cryptocurrency market, making it unstable, detracting investors. However, the traditional financial market is just as susceptible to volatility, which makes it worth investing in. External factors are at play on the traditional market just as they are on the crypto market, while the mathematical instruments used for forecasting crypto price dynamics were adopted from Forex and other trading strategies.
Cryptocurrency investment is not so much an art form as a carefully thought-out approach based on individual investor sentiment, strategy formation, application, and adherence. Crypto investment is a commitment and in-depth understanding of the underlying market dynamics that can act both in favor and against the investor’s portfolio.
When deciding to make a crypto investment, over half the success an investor can hope to achieve is based on their own decision-making and approach to investing as a whole. No one can determine an impervious and guaranteed strategy or course of action when the question of “how to invest in crypto” arises. The course of action must take the investor through the process of analysis of the investment opportunities available on the market to decide which approach best suits their expectations and, more importantly – their personal style.
How To Invest In Cryptocurrencies
When it comes to investing in cryptocurrencies, potential investors must first conduct a thorough analysis of their mindsets and the market to understand whether its dynamics and overall sentiment suit their expectations. Potential investors must also realize that the degree of risk involved in the crypto market is high and there is no such thing as the best crypto to invest in. Every asset on the market is subject to dramatic potential price drops or hikes, and their personal emotional state will determine how they react in the face of market dynamics.
Considering the overall conditions of the market and the opportunities it provides, potential investors must determine which projects to invest in and which yield generating strategies best suit their personal expectations and investment approaches.
Analysis
Before deciding which crypto to invest in, investors must conduct an analysis of the projects they have selected as potential assets for their portfolios. The question “is crypto a good investment” is entirely dependent on the crypto in question. That is why several metrics and factors have to be taken into account while conducting a preliminary fundamental analysis of any crypto project.
On-Chain Metrics
On-chain metrics refer to the characteristics of a crypto project that can be measured and seen on the blockchain in a transparent and immutable fashion. These metrics are vital, as they showcase the financial indicators and activity parameters of the project.
The number of transactions – The total number of transactions with any given project’s native asset is a solid indicator of its popularity and trading volumes. The higher the volumes – the higher the liquidity and demand for the asset, which translates into volatility and potential profit.
Transaction amount – The average amount in each transaction conducted with the asset. Small amounts are indicators of scalping by traders, which means that volatility is low, as are profits.
Active addresses – The total number of users holding the given asset, which is a clear indicator of popularity. As the number of addresses drops – the asset is being sold off.
Trading volumes – The trading volume indicates how much of a certain asset is being traded within a certain timeframe, usually 24 hours. High volumes are indicators of demand, and thus – price increases.
Market capitalization – The total amount of funds the project has allocated to it.
Project Metrics
The information provided by the development team about their project is what allows potential investors to decide whether it is a promising asset and whether it can be considered a long or short-term investment. Analyzing project metrics is part of fundamental analysis, which allows experienced investors to identify scams or projects with low potential.
The White Paper – Every project should have a white paper that contains the essential information about the project, outlining its essence, economic and business models, as well as its plans. Analysis of the white paper is vital, as it outlines the application of the project, its legality, and prospects.
Team – The team behind the project must consist of reputable individuals. Anonymous teams are a clear sign of fraud.
Partnerships – A promising project must have partnerships with companies from the decentralized industry, or from the traditional economy. Partnerships suggest an application, which leads to demand for native assets, translating into price increases.
Competitors – It is possible that competitor projects have better offers and are established on the market, making them better options for investment.
Tokenomics – Tokenomics is the basis of the project’s business model and must be logical and long-term goal-oriented.
Social media activity – The lack of social media activity is an indicator of the projects’ halt of development.
Holding
When it comes to crypto investment strategies, the most risk-free and common approach adopted by prudent, novice, and even experienced investors, is the holding strategy. Also known as HODLing, which comes from a typo found in the original post on the Bitcointalk forum, holding means keeping crypto assets on a wallet in expectation of their growth.
Though the strategy may seem risk-free and prudent, it also requires investors to constantly monitor the market and update their portfolio so as not to lose on volatility and exit at the right moment. Investors must always remain in touch with market dynamics and watch out for any new cryptocurrency to invest in and add to their portfolios.
The best example of holding is Bitcoin, which experienced price hikes of up to $65,000 after a protracted bearish slump to around $20,000. But then, the coin dropped dramatically, clearly illustrating how those who held it in expectation of further price increases eventually lost after missing out on the opportune moment to exit and fix profits.
Trading
Trading is the next most profitable strategy in the crypto market. However, trading is bound to all of the risks inherent to cryptocurrencies.
Investors willing to try their hands at crypto trading must first have solid background knowledge of how to invest in cryptocurrency assets. That means good command of market metrics and technical analysis instruments, sound knowledge of graphs, the fundamental analysis factors, and other important indicators that can allow them to forecast price movements.
Traders must also know where to invest in cryptocurrency assets, which translates into the knowledge of the available exchanges and the instruments they offer, their interfaces, the commissions they charge, the trading pairs available, and any other additional functions provided. Traders should also be acquainted with automated and algorithmic trading, which can significantly boost their capabilities and free up time.
Trading is a full-time job requiring constant concentration and market involvement. It also requires knowledge of the many strategies available, each of which bears its own pros and cons. Most importantly, investors seeking to trade must be ready for losses, which highlights the need for a specific mindset that demands command of emotions and the ability to resist fear and panic in case of market fluctuations.
DeFi
The emerging DeFi market offers numerous opportunities for potential investors seeking both relatively risk-free and risky solutions. The higher the risk – the higher the profits.
Staking – Staking allows users to deposit their assets on PoS blockchains into pools in exchange for rewards. Staking can generate interest rates and is relatively low-risk, depending largely on volatility. Rewards usually range from 4% annually to anywhere around 25%
Yield farming – Also known as liquidity farming, it allows users to contribute their assets in pairs with other coins to liquidity pools on exchanges or dedicated platforms in exchange for rewards in the form of commissions from each trade. Yield farming also generates high enough returns like staking, but bears a higher degree of risk, since investors have to constantly monitor the returns of assets and the rewards offered by competing pools.
Conclusion
No matter which approach investors eventually adopt, they will have to work through exchanges that have become the central hubs of all crypto market activity.
Among the most reliable crypto exchanges on the market is ChangeNOW that provides a convenient interface and smooth onboarding for all users. The platform offers a broad range of assets, including more than 10,000 currency pairs with an ever-growing list of offers. ChangeNOW requires no registration and has no hidden fees, allowing users to rely on an easy-to-read interface and real-time price monitoring for instant trade execution.
Deposits on ChangeNOW start from as little as $2 and exchange operations require under 2 minutes, making the platform one of the fastest on the market. ChangeNOW supports all the major gateways, including Visa and MasterCard for fast and easy fiat-to-crypto purchases or transfers, ensuring that users can cash out their funds with ease.