On November 11th, in shocking news, the popular crypto exchange platform FTX filed for bankruptcy due to a liquidity crunch. Its sister firm Alameda research along with 130 affiliated companies all went bankrupt in a major upset under the banner of their parent company, FTX. Now how did that happen to such a giant trading platform? Well, as it happens with a lot of conglomerates, Alameda used customer assets to cover up the business losses. It was briefed that the owner, Sam Bankman-Fried could virtually rein almost freely over the FTX US, FTX International, and Alameda Research, manipulating public trading assets to favor the company’s losses. And as soon as that news leaked to the press, all investors pulled out and the company plummeted to death.
The lessons we can learn from the crash of FTX can help us, fellow crypto investors, in choosing appropriate exchange platforms that will not easily pull their rug from under their feet on a whim. All we have to do is to pay attention to some of the important key factors that an ideal crypto exchange platform should have. So, here are a few points to keep in mind if you really want to invest your precious crypto in a reliable exchange platform.
1. Check If They Possess Enough Liquidity
The first and foremost duty of an eager investor has to be to research whether the company is well established and has at least 5 years of trading record. This has become the main litmus test in choosing the best exchange after the FTX scandal. You will have to make sure that they provide means to prove to you that they truly have the sufficient liquidity assets that they claim to have on behalf of your coins. It usually comes in the form of a simple button called ‘verify my audit’ which lets users see when was the last time an audit was done on the existing coins in their accounts.
The fastest way to judge the liquidity of an exchange is to look at its trading volume. The higher the volume of its trading, the better the exchange is. Coinbase and Kraken are currently the top two exchanges with the highest market volume, according to CoinMarketCap. Therefore, it is very important to know beforehand the liquidity of the company – the ability to turn your cash into coins and vice versa. Or it might end up like FTX, using public funds to cover the trading losses due to a liquidity crunch.
2. Make Sure They Provide Enough Security
Another important feature of a reliable exchange is its capacity to provide high-security measures. There is a history of renowned crypto exchanges that have gone bankrupt due to the loss of customer assets due to hacking or phishing attacks. Mt. Gox was at its peak of success when a cyber attack caused it to collapse as a result of a loss of $460 million of customer assets. The same was the case for BitMart for a $150 million loss. So, one has to be very careful in choosing an exchange with fewer cyber attacks.
Two-factor authentication is the most common feature of trading platforms offered by Google Authenticator to protect the user from phishing hacks. However, it is advisable to look out for more platforms with more layers of security, such as biometric login, facial recognition, fingerprint scanner, etc.
More prominent platforms make users open accounts with their own passports or driving license. This type of government verification makes the exchange platform more safe and more secure since it leads to a decrease in spamming accounts created by hackers. Therefore, you should always look for these additional layers of security measures in a trading platform that ensures your account safety as well as provides you with a safe environment to participate in the crypto exchange.
3. Ensure the Exchange Is Regulated
If you are to look at the traditional stock market, you will find it trustworthy because it is heavily regulated and that too by government agencies. Now, compared to that, the crypto business is like a wild west with little to no regulations to protect the integrity of the system. And the reason is that, while the stock exchange has been around for hundreds of years, the crypto market is barely a decade long old.
When you opt for an exchange platform, make sure that they have been financially audited and have Service Organization Control (SOC) report updated. It is better to invest a big amount of money in a platform overseen by government agencies than to invest even a small amount in a platform with no proper audit history.
Popular exchange platforms like Coinbase, Gemini, and Bitstamp have a license called Bitlicense which is provided by the New York State Department of Financial Services. This proves that their businesses are strictly controlled and monitored by government departments and hence are less prone to fraud or scams. Washington is already on the verge of debate about how well the crypto business can be regulated so that both the investors and the owners can benefit from each other.
4. Check the Insurance Policy
Though there is a boatload of digital security measurements to prevent any form of attack, good exchange platforms still maintain some specific form of insurance packages in times of security failure.
Platforms like an USDT casino and other similar companies have already started adopting various insurance policies to protect the assets of their customers. So, it is a good company virtue to follow in the footsteps of other similar products that ensure the safety of its loyal investors.
If you are looking for a trading platform, always look for the ones that have registered for commercial crime insurance which typically covers cyberattacks, fraud, dishonesty, and robbery. Platforms like Gemini maintain about $290 million in digital asset insurance for specific cases of loss. Therefore, it is a wise move to always check for the insurance policies on the websites of your desired exchange and take notes of what it covers.
If you are depositing US dollars in your account, make sure that the exchange provides Federal Deposit Insurance Corporation protections against your deposited dollars. Call customer service, if required, to find out whether your custodial account is linked with an FDIC-insured bank.
5. Take Notes of the Fees
Crypto platforms, unlike brokerage platforms, require fees every time you buy or sell coins. There is no free launch as in the case of stock or bond trading platforms. Every time you engage in a trade, invest or deposit, the platform takes a cut from you which ranges from 0% to about 5% per each trade.
Just like many Bitcoin sports betting sites, these fees are decided based on your 30-day trading period. The percentage that you pay as a fee falls short if your trading volume increases, and the fee increases if there is a single transaction of a fixed amount. For example, Bitstamp will charge you a fee of a total of $75 if you trade $1000 worth of transactions 15 times in a month. However, your fee would have been less, of about $50, if you traded $20,000 one single time in a month.
Therefore, your accrued fee is inversely proportional to the volume of trade that you have accomplished in a given 30-day trading period. Coinbase offers a fee that ranges from 0% to 4.5% depending on your type of transaction. Therefore, you have to research a little bit about the incurred fees that each trading platform requires.
6. See the Availability of Your Desired Coin
There are, as of now, a total of 10,000 different coins, each having its own perks and cons. So it is obvious that no single platform has the capacity to offer all of these coins. Hence, before you register for an exchange, make sure they allow trading the coin of your own preference.
If you are into popular coins like Bitcoin, Ether, or of similar leading DeFi tokens, you can easily avail of those on most of the platforms. However, if you are into rare or more complicated coins, then you would have to research the platform before betting your dollars on it.
Platforms like Coinbase offer you up to 450 types of different tradeable coins, whereas Kraken offers more than 160 different ones, which include meme coins such as DogeCoin, and Inu Shiba coins as well. So, it’s your job to know which exchange platform supports your choice of coin.
Conclusion
After the FTX scandal broke out, many investors started to lose faith in crypto exchange platforms as they might one day become victims of such immense financial loss. Therefore, it is advisable for all players of the game to choose with care the best exchange platform that offers security, insurance, good work ethics, and is backed by government regulations.
If you are a crypto enthusiast like me, you have to spend a good deal of time investigating the features of a trading platform before depositing money in it. An ideal exchange should have all of those above-mentioned requirements fulfilled so that investors feel safe.
