An online marketplace where you can buy and sell digital currency is known as a cryptocurrency exchange. You can buy cryptocurrencies using fiat currency like the US dollar or exchange cryptocurrencies, such as by converting Bitcoin to Litecoin. The cryptocurrency exchange prices are determined by the current market rates. On an exchange, you can also exchange cryptocurrencies back into dollars or other currencies. You can then either withdraw the money to a regular bank account or leave the proceeds in your account as cash (in case you decide to exchange them back into cryptocurrencies in the future).
Tyrone Ross, a financial advisor and the CEO of Onramp Invest, a cryptocurrency investment platform for financial advisors, claims that there isn’t a single cryptocurrency exchange that’s best for every user. Instead, he advises considering your own cryptocurrency interests and selecting an exchange that supports them. For instance, you might be searching for a specific coin or want to keep learning as you begin investing in cryptocurrencies.
“Are you looking for something similar to Casa, which does a lot of the work for me and eliminates the need for a public and private key? Will I visit Gemini in order to purchase this peculiar coin they have that I want? Or am I going to Coinbase because it has such awesome tools that I can use to learn and make cryptocurrency?”
How to Evaluate an Exchange’s Accessibility
Due to local or international regulations, you might not be able to buy or sell cryptocurrency where you are due to certain exchanges. Some nations, like China, have outright forbidden their citizens from accessing cryptocurrency exchanges.
There is a lot of regulatory ambiguity surrounding cryptocurrencies in the US, and some states have implemented their own rules. For instance, New York only permits licensed businesses to offer specific approved coins and requires exchanges to obtain a BitLicense before they can operate within the state. Although most other states don’t have laws as strict as those in New York, many of them do or are attempting to. The National Conference of State Legislators estimates that 31 states will consider legislation relating to digital currencies during their legislative sessions in 2021.
On an exchange’s website or in the terms of service, you can frequently find details about its geographical restrictions as well as related accessibility aspects, like the national currencies it accepts.
Your cryptocurrency holdings are not protected the same way that bank deposits or conventional investments are because cryptocurrencies are not backed by any centralized authority. Certain exchanges, such as Coinbase and Gemini, maintain any U.S. dollar balances you have with them in FDIC-insured bank accounts. However, the FDIC does not cover cryptocurrency balances.
There are thousands of cryptocurrencies, but not every exchange supports them all.
Any exchange you consider is likely to have a popular coin you’re interested in, such as Bitcoin or Ethereum. However, you might need to do a little more research before choosing newer altcoins, coins with a tiny market cap, or meme coins.
Just keep in mind that these coins, on top of the already highly speculative, more established cryptocurrencies, are frequently even riskier bets. Because of this, many professionals advise sticking with well-known currencies like Bitcoin and Ethereum. If you’re thinking about purchasing a cryptocurrency on an exchange, only trade in money you’re willing to lose.