Cryptocurrencies have attracted great interest in recent years as investors look to attract meaningful returns that beat inflation. As a result, digital currencies like Ethereum (ETH), Bitcoin (BTC) and Dogecoin (DOGE) are now oft-seen holdings in many portfolios - for both experienced traders and for retail investors. However, to buy crypto assets, you need to start trading through an online brokerage or crypto exchange which we discuss here.
How to buy Bitcoin and other cryptocurrencies for your portfolio
To buy and sell cryptocurrencies, you have several options. You can sell an asset and take a digital currency as a payment into your digital wallet. You can mine for digital currencies using highly sophisticated computers and software. Or, you can buy and sell them in a similar method to stocks and shares - on an exchange.
You can do so through a couple of means. First, there are brokers with online trading platforms that allow you to trade other asset classes. Or, you can use specialist online crypto exchanges, which are increasingly popular. They can help you cut out the middleman and reduce trading fees. However, there is still massive variation between cryptocurrency exchanges, impacting how user-friendly you find each one.
Our guide to the best cryptocurrency exchanges in the UK identifies those that provide the ability to trade Bitcoin and its peers easily and what factors make them so good. Understanding those factors will help you make the best decision on which exchange is right for you. As ever with any form of investment and the practice of investing, everyone and everyone’s situation is different. As a result, the perfect exchange for one investor could be wholly inappropriate for another.
What makes the best crypto exchanges?
When researching crypto exchanges, we identified the following factors as relevant. Keep them in mind whether you are interested in basic or advanced trading.
How you interact with an exchange is vital to how well suited it is to you. If possible, have a few 'dummy' runs with specific platforms and see if you get along with the interface it provides to help you trade. Software should be intuitive for you and not hinder your ability to trade in any way. If you find it challenging to use, it is doubtful that you should use that exchange for trading. With your money at stake, particularly given the complexity that trading crypto can have, making things as easy as possible is a way to provide yourself with a helping hand.
Secondly, simply signing up to an exchange needs to be easy, as should any subsequent procedures. Try to identify which exchange has the best processes for withdrawals in addition to its payment methods. For instance, can you pay the exchange by bank transfer, credit card or debit card? Or will you get faster payments elsewhere? Also, ask yourself whether its verification process and KYC procedures are robust yet streamlined. Having straightforward and streamlined procedures is vital as an exchange can have the best interface in the world with the lowest fees. Yet, if the rest of its operations are slapdash and slow, you will find any interaction with the outfit exceedingly frustrating.
Despite often being at the forefront of FinTech, some exchanges do not always have a fit for purpose app for every device. Check, therefore, whether the mobile app for your phone is effective and efficient. Or, if you know you will be using your computer more often to trade, ensure that the web application or desktop application is suitable for you.
Exchanges and online platforms can often help you do more than just buy and sell crypto. Many exchanges will also offer research articles and investment suggestions on what trading pairs or exchange rates are most exciting at that moment in time. To some, that research may be an unnecessary extra, while it may be invaluable to others. Depending on which camp you sit in, ensure that your potential exchange offers what you want. If it does provide a large amount of research, but you don't want it, ensure you are not paying for it unnecessarily.
Analysis tools are another aspect of exchanges that some customers want, and others happily do without. Some exchanges or platforms will offer these in abundance. To some investors, they will be crucial trading tools to support making the best investment decisions possible. However, many investors will not want much more than a charting tool - if that. If that is the case, much like having an extensive provision of research, ensure you are not paying more for an exchange for its analysis tools that you never use.
Exchanges often come with a crypto wallet. You need to ensure that if the exchange you use provides a crypto wallet, you know how to use it. Additionally, you need to ensure that if it does provide a crypto wallet, it can store the cryptocurrencies you would like to hold or trade in the future. For example, does it just have the ability to store the private keys for the more famous cryptocurrencies like Bitcoin, Bitcoin Cash and Litecoin? Or, if you use a cold storage solution to store your private keys offline, does that work with your potential exchange?
Here's a huge factor to consider when researching potential crypto exchanges. Is the exchange regulated by the Financial Conduct Authority (FCA), or does a different authority regulate it outside the United Kingdom? If it is, are you happy with the level of scrutiny and protection the non-UK authority offers if it is regulated at all? Regulation, though somewhat at odds with the decentralised nature of the digital asset as a whole, is there to protect investors. Without it, any investment class (from digital assets to stocks and shares) is prone to criminal activity and fraud - making investments in them a difficult and financially dangerous thing to do.
Here’s another biggie. Does your potential exchange offer high or low fees for each trade? What is its fee structure? Look into whether the transaction fees a company charges take into account trading volume or trading frequency, and then compare that to your trading strategy. If you are making large trades, you will likely want an exchange that rewards you for that style. However, you may like to trade little and often, in which case you want an exchange that does not penalise you for this. Instead, you want one that sets lower fees the more you trade.
Range of digital currencies
Finally, you need an exchange that offers the range of digital currencies you want to trade. In this way, looking at exchanges for their asset range is much like looking at foreign currency exchanges. If you are a Forex trader, you may well want the ability to trade more ‘exotic’ currencies than just USD, EUR and GBP. That’s the same with crypto. While Bitcoin is likely to feature in a person’s cryptocurrency holdings, it is by no means the only digital asset available. There are over 12,000 digital currencies alone before considering other digital assets like non-fungible tokens (NFTs). Your exchange must provide the ability to have a wide-ranging order book and not just offer Bitcoin to its customers.
Top exchanges to trade cryptocurrencies
Bearing the above in mind, here are some of the most popular crypto exchanges. However, that is not to say that any or all of the below will be suitable for your needs. So remember to try them all for yourself.
The security-conscious will probably like Kraken thanks to its two-factor authentication for account login and other measures that make it safe to use. In addition, the fees are not exorbitant, particularly for basic transactions like depositing money or making withdrawals. What helps make it popular is how customisable an interface it has, plus it has an overall professional looking design. Generally speaking, Kraken is better for experienced traders, but that does not mean a beginner who is happy using some expert language will not find it a good option.
Cex.io has one of the best support sections of all exchanges, a massive comfort for digital currency novices. Notably, Cex.io offers many different types of cryptocurrency, so it is suitable for those who want a diverse digital portfolio. The exchange also allows you to trade fiat currencies (digital currencies pegged to assets backed by a government). Users often state they find the platform very easy to use. It is intuitive, too, meaning you can hit the ground running when setting up trading accounts with Cex.io.
eToro has recently gained a great deal of notoriety thanks to its social trading feature. Customers can follow fellow traders and put in orders that simply copy that trader’s investments and sales. While past performance is not a guarantee of future performance, many investors like to use other experienced traders’ actions as a guide to structuring their platform. Arguably, that could be both a help and a hindrance. However, eToro does have other advantages. Its main one is a low to zero commission structure, meaning fees are competitive despite having a highly sophisticated trading platform that supports its social trading feature.
Binance has many cryptocurrencies on its books for investors to trade. However, one of the crucial advantages of Binance is not just its breadth but also its speed. The exchange allows for instant payments that can rival more traditional forms of money payments that may take several hours, if not days, to settle. The company also offers its trades for a low price. Customers can even pay zero fees on some transactions. Of course, there is no such thing as a free lunch, but minimising your trading costs in any way can be a big help - particularly when starting out with smaller sized trades.
Gemini’s security is one of the reasons it has gained so much popularity. While it may have some higher fee charges than many competitors, it also has some innovative features like insurance on digital assets in its cryptocurrency wallet (Gemini wallet). In fact, Gemini stores a vast amount of its assets in cold storage, which makes it arguably that much safer against online threats. Additionally, it has low minimum trade amounts making it a good option for beginners. Finally, it has apps for both iOS and Android users that are effective.
There are two versions of Coinbase. The first, more basic version: Coinbase. The second is aimed at more seasoned investors and is called Coinbase Pro. Therefore, it is a pretty reputable solution for any type of crypto trader. Its educational resources are particularly accessible for first-time users. At the same time, the extra features in Coinbase Pro are beneficial for experienced traders looking to trade or exchange cryptocurrency with other traders, not just using Coinbase as a broker that holds its own positions.
Why you should and shouldn’t invest in crypto
While looking at exchanges that support cryptocurrency investing is essential before stepping foot into the digital market, it is also advisable to ensure that it is a suitable asset for you in general. For that reason, we summarise some of the asset class's more considerable and notable advantages and disadvantages.
High return potential
The lure of potentially high returns is what possibly keeps drawing people into this asset class. For example, in 2021, Bitcoin investors could have seen their initial investment more than double from its starting price point on 1st January if they exited at the right time. Other digital assets can also generate high returns. Solana, for instance, reportedly made an 11,000% return in 2021, which is hard to imagine with traditional investments like stocks, bonds and even commodities.
Like the Forex market, there is a great deal of liquidity in the digital asset markets. That’s down to the number of investors now trading digital tokens and coins and the sheer amount of digital assets that are continually established or created. Another helping hand to the asset class's liquidity is that it is open 24/7. That means more people can access the market and its exchanges, further supporting liquidity. Having a liquid asset is a considerable comfort to investors as it means they can exit positions should they need cash quickly.
Cryptocurrencies are not beholden to Governments in a way traditional currencies are. They are truly global and are not regulated or overseen by any state. That is hugely attractive to many investors who like to move out of the realm of state intervention. Its decentralised nature is also supported by blockchain technology that makes cryptocurrency holdings and transactions anonymous. That is a big bonus to investors who like their financial affairs to remain private. They never have to hand over personal information when buying and selling on a crypto platform.
While being decentralised is a massive draw for many investors, it does come with the negative side effect that it is less regulated. While financial regulatory bodies can oversee platforms and exchanges, providing some form of security buffer, there is still the risk that no single Government has oversight of the asset. This can put investors at risk. In the UK, while the Government backs £85,000 worth of savings for each account holder in a bank via the FSCS, there simply isn’t that reassurance in digital currency. It means that if a scam occurs so that an individual's holdings reduce to zero or are even stolen, there is little that the UK Government or the FCA can do to help you.
No discussion of crypto is complete without mentioning its volatility. While all investments suffer from erratic price movements at some point in their investment lifecycle, volatility characterises cryptocurrencies on an hourly basis. It can make investing in them an overwhelming prospect. Calculating good entry and exit price points is complicated when an asset moves around as much as crypto does. While that does mean you can make significant returns, those returns can quickly turn into even more considerable losses almost instantaneously.
Perhaps one of the reasons for digital currencies’ volatility is down to their complexity. Cryptocurrencies are based on technology that the average person may struggle to get their head around. Plus, while they are increasingly being used to pay for goods and services, as a government does not back them, it is hard to use traditional fundamentals that investors often use to appraise assets like stocks, bonds and Forex. It is not impossible to learn, however. The more you read around the subject of cryptocurrency and immerse yourself in that world, the more you will understand. That being said, it is not a simple asset class by any means.
We asked Andy Robinson of Operation Crypto for his thoughts on cryptocurrency exchanges. He told us: "eToro is one I would highly recommend not using, you don't physically hold the crypto. When buying and selling crypto you need to be in a position to move your crypto to a private wallet. eToro doesn't do this so in reality, you're not buying the asset.
"Binance is a great exchange to use and has predominantly most of the well-known crypto's. A slight negative is they don't currently offer 'faster payments' so it can take a while to get your money back to your principal bank account.
"Kraken is a decent exchange and does offer quick withdrawals.
"Coinbase is very user friendly and easy to use; however, the fees are quite steep.
"Personally, I use Binance, then for any crypto to fiat and vice versa I use Swissborg as the on/off ramp."
While you may have identified what cryptocurrencies you want to invest in, consider what cryptocurrency exchange is suitable for you, too. Using an exchange ideal for your needs is essential to ensure you can place trades as and when you want. If your exchange is substandard for your needs, you put yourself at risk of losing money. That could be because you do not understand how to use its software or because it does not offer the range of cryptocurrencies you believe offer the best investment potential.
As with any investment, ensuring you know that the asset class and specific investment fits in with your risk profile is crucial. But that is closely followed by ensuring that how you make that investment is appropriate for your risk profile. Using our above guide as a checklist can help to ensure that your final chosen exchange is the right one for you and the rest of your portfolio.