Choosing the best cryptocurrency exchange — your options and how to pick between them
- A crypto exchange serves a critical role in the world of cryptocurrency, converting everyday money into digital coins and vice versa.
- More investors in India are jumping onboard to grow their wealth, hedge against inflation and diversify their investments.
- Here’s how a first-time investor, or a seasoned trader tired of the exchange they’re currently using, can pick the best crypto exchange that meets their specific requirements.
AdvertisementIndian cryptocurrency investors currently have over ten exchanges open for business – and more are poised to enter the country. Almost two crore Indians currently hold cryptocurrency, with just a single exchange accounting for $21.8 billion of trading volume in the first seven months of this year.
To a person who trades in cryptocurrency, the exchange they use makes a big difference in outcome. “But wait,” you say, “Cryptocurrency is decentralised and can be moved directly peer-to-peer (P2P) right?” That is true, yet more than half of Bitcoin’s trades in the last two years were made through an exchange.
Here’s a quick look at what an exchange does, how it makes trading easier, the services that differentiate one over another, and more.
Exchanges are looking to do more than just swap out Bitcoin for rupees
An exchange plays a key role in enabling cryptocurrency trade and use. In the simplest terms, it serves as the entry point for ‘normal’ money such as rupees to enter when buying crypto, and the exit point to redeem rupees when selling crypto. Essentially, it serves as a matchmaker to connect those who want to buy with those who want to sell. At sufficient scale, an exchange could have an ‘order book’ large enough to offer ‘currency pairs’ that help users who want to directly convert one unit of crypto to another, such as from Bitcoin to Ethereum.
Since exchanges earn from transactions made, they’ve lately been promoting wider adoption of cryptocurrency, introducing users to crypto lending, crypto borrowing and NFT art auctions. In addition to economic functions, law enforcement agencies rely on the identity verification that exchanges are mandated to perform, to investigate any probable crimes.
Theoretically, anyone could set up a crypto exchange with readily available software modules. However, in practice, only registered verifiable businesses are able to accept Indian users and payment methods. This is due to needing recognition from payment gateways to receive/send money, interfacing with govt IDs to verify users with PAN/Aadhaar cards, and tax audit requirements thus reducing the risk of fly-by-night operators.
Largest cryptocurrency exchanges usable in India
Listed here are 16 of the largest crypto exchanges that are accessible in India:
|Exchange||24h volume in US$|
Note: The volume of trade is variable, this list is ordered as per 24 hour trading volume in US$, as of close of 1st Nov 2021.
We do not rank them, as preferences of different people would place different weightages when measuring them against each other. For example, a person could prefer a much smaller exchange that is designed to be easy and well-supported, compared to a global giant. One may use a couple of them before deciding which one they like best. Yet another may be focused on sheer fees and margins. We detail these subjective factors below for your benefit.
Things to look out for when choosing a crypto exchange
Let us get one thing out of the way – to a long-term investor who is beginning to test the waters with cryptocurrency, any exchange will do just fine. The important thing is to save and gain confidence.
AdvertisementPast a point though, a lot of little things become important. When investing larger sums or looking at short-term trades for profit, these “quality of life” improvements help with speed, convenience, cost and minimised risk. These nine factors are explained below, with various exchanges reconciling them with each other to different extents.
- What is KYC on crypto exchanges?
Global laws to ‘know your customer’ make it mandatory to upload ID proof of your name and address, before you can transact anything. Vauld is one example of an Indian exchange which welcomes central government issued IDs and uses automated systems to clear this hurdle within seconds. Binance on the other hand, has had waiting times of weeks to complete KYC, according to some users.
- Modes of payment and currency accepted on crypto exchanges
Considering that Indian banking authorities still haven’t explicitly welcomed crypto, paying money into your exchange still isn’t as easy as booking a train. WazirX for example, currently prefers UPI transactions which are relatively quick.In the past, the Reserve Bank of India (RBI) had prevented transferring money to crypto exchanges. Though that issue was resolved in September, India’s largest bank (SBI) is still trying to prevent even UPI transfers by its account holders to exchanges. That partly explains why Indians sometimes take a possibly illegal route of registering/verifying as a non-Indian on international exchanges, to be able to use debit/credit cards for adding money into their exchange wallet.
- Why does the selection of coins or cryptocurrencies matter when choosing a crypto exchange?
A wide selection of coins and currency pairs maximises the chance of profit. As an appalling example, Paypal sells only four major coins in two countries at a high price that may make sense to loyal users. Standing at the other end are the likes of Coinbase, supporting hundreds of coins and thousands of coin sell-buy combinations called currency pairs — like Ethereum-Bitcoin, Shiba Inu-Tether and Solana-Bitcoin. Such currency pairs allow direct trades between each other, instead of needing two transactions to separately sell one coin and then buy the other.
- Fees on crypto exchanges
Fees on trades is the profitable part for an exchange, but is perilous for a trader with slim profit margins. Exchanges levy fees on everything, from depositing to withdrawing, from instant selling and buying to futures trading, and from wallet transfers to lending/borrowing. They may charge a flat amount or a percentage, with the rates varying for different tiers of users and subject to change over time, thus making any outright comparison futile at worst or difficult at best.
- Financial services offered by crypto exchanges
Because the basic facilities of an exchange are being commoditised, the best ones go further. If simple trading is not exciting enough, welcome to the world of derivatives like leverages, shorting, lending, and NFT art sales. On such a scale, Paypal would occupy the extreme end of boring, and Binance at the other end with financial derivatives found too extreme for Europe’s regulators.
- Mobile app features and perks on having a crypto exchange on the go
When on the go, an easy to use smartphone app is good for investors who may not always have access to a larger screen with space for lots of detailed charts. For example, the CoinDCX app strikes a certain convenience versus complexity compromise, while Vauld sacrifices nuance to get closer to convenience instead.
- Trade execution speed at crunch time on different crypto exchanges
The speed of executing trades, even after allowing for crypto transaction delays, has been a sore point with all exchanges that currently serve India. Tragically for astute investors, when there is a flurry of market activity and large opportunities open up, the larger exchanges slow down and the smaller ones simply crash (down for maintenance) due to unexpectedly high traffic. Also at times of extreme volatility, users have noticed they are blocked from selling but are still allowed to buy, which exchanges have claimed is a way of ‘protecting’ their users.
- The importance of security of digital currency and user data on crypto exchanges
All of India’s largest exchanges are centralised with user wallets handled by the exchange. In general, a larger and growing exchange is more likely to see the need for a security team and fund it, compared to smaller ones. So far, no Indian crypto exchange has revealed any security breaches. To reduce risk, long term investors usually move their crypto holdings from an exchange to a separate wallet over which the investor can have more control.
- User support on crypto exchanges
You may have questions or issues, even after going through the relevant exchange’s tutorials and help section. The options usually offered then, are to email or live-chat to get a company response, or post on their forums to discuss it with other users. The larger exchanges are able to maintain a presence on social media as well, on sites such as Twitter and Reddit.
More recently, cryptocurrency brands that are self-regulated were aggressively advertised during the T20 World Cup this year. Considering the efforts to widen awareness, now is a good time for a cryptocurrency trader who is building wealth to evaluate their crypto exchange for maximum benefit.
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