As the Crypto market bull gathers pace, the most obvious desire for most Crypto fans and the general public is to buy Cryptocurrencies.
There is a caveat, however, in this endeavor as Joel Comm, a New York Times author and Blockchain evangelist discusses.
Crypto Trading Lacks Insurance
In conventional banks and other mainstream financial platforms, a loss of wealth through perils such as hacks or heists is insured and losses are in most cases indemnified. However, the Crypto industry, partly due to its decentralized nature is largely uninsured and investors can suffer total losses if the Digital Wallets are compromised.
Most importantly, Crypto Exchanges are self-regulated and there are key factors that investors should consider since they cannot with certainty establish the implications of risks that they put their Digital Wealth in when they order ‘sells’ and ‘buys’. They are:
1. Whitelisted Countries
Despite being open-source platforms, Crypto Exchanges are not automatically supported all over the globe. Unfortunately, the US is one of the countries that are not covered in most Crypto Exchanges due to stringent regulations that even though they are well-meaning, they limit the options for Americans to participate in Crypto trading.
Therefore, prospective investors should always make sure that their Digital marketplace of choice is available in their country of domicile.
2. Volume Of Transactions
The decentralized and independent nature of Crypto Exchanges is the reason why different Coin listings like Bitstamp, Coinmarketcap, eToro, etc. register Crypto prices that can vary by as much as 10%.
This scenario occurs because prices in a specific platform are determined by the tradeoff between sale and buys orders. This tips the RSI scale on the overbought or oversold territories and hence determine the price momentums and growth cycles for the listed Tokens such as XLM, ETH, etc.
Hence, smaller Exchanges that have low volumes of transactions can show rates that deviate from the market trend and misguide investors to make risky decisions.
Therefore, Crypto traders should always sign up on large platforms, and if otherwise, they should compare prices of Digital Assets on other high-volume networks before placing orders.
Binance recently lost $40 million from a sophisticated dark web heist. This means that all Crypto Trading platforms are vulnerable and investors are being advised to pay attention to safety features before starting to trade.
One of the boxes that a safe Crypto Exchange has to check is the two-factor authentication that uses Authy or Google Authenticator. Secondly, one should also consider past network breaches consequential ripple effects. Lastly, the type of architecture that supports the platform should also rank top of the considerations as some technologies are more vulnerable than others. Traders can get all these safety details from projects’ whitepapers.
Increased Regulation Makes Crypto Exchanges Less Risky
Much as the Crypto space has evolved in the wake of increased regulation of the trading platforms by select jurisdictions with a significantly high number of traders and investors, the platforms still operate in the wild west and it largely remains the responsibility of investors to do due diligence and get the “right” platform.