There are more than 1,600 cryptocurrencies in circulation today, with a combined market cap of over $289 billion, according to CoinMarketCap data. Investors around the world are eager to trade in this rapidly-growing space, and a slew of cryptocurrency platforms have emerged to meet the need for infrastructure to support the exchange of digital currencies. Though they call themselves “exchanges,” from an investor’s standpoint they function similarly to e-brokerages and their rapid rise is reminiscent of the explosion of electronic discount brokerage firms during the dotcom bubble of the late 1990s.
These exchanges allow consumers buy, sell, and trade cryptocurrencies, whether through fiat currency like dollars, euros, or yen, or another cryptocurrency like bitcoin or ether. Less common cryptocurrencies, called altcoins, often must be traded against bitcoin and cannot be purchased directly with fiat currency. Not every exchange supports every coin, and many investors use more than one platform. Some exchanges are better suited to less experienced traders and retail investors, while some are geared towards institutions or full-time traders.
The law governing these exchanges vary widely based on location and the type of services each exchange offers. Some exchanges are unregulated, some are not available to customers in certain countries, and all are vulnerable to an ever-changing regulatory environment. After China’s crackdown on cryptocurrency in November 2017, Chinese exchanges were forced to move their operations elsewhere or shut down completely. Other exchanges recently suspended service to Japanese customers following new guidelines issued by the Japanese Financial Services Agency. American exchanges are subject to state-by-state regulations as well as federal guidelines. New York State, for instance, implemented “BitLicense” regulations, which grant licenses to virtual currency businesses, in 2015.
There is a dizzying array of offerings and options at exchanges. Though the space is hyper-competitive, each has a different fee structure, trading features, coins on offer, and security and insurance measures in place.
Most exchanges charge trading fees based on a “maker-taker” model, under which “takers” place orders that are executed immediately (read: market order), removing liquidity from the market, while “makers” place orders that sit on the books, below the ticker price for a buy and above it for a sell (read: limit order). Makers create more liquidity in the market and are often rewarded with lower fees and rebates. Takers are typically charged higher fees, which in these exchanges generally hover around 0.1% or 0.2%.
Perhaps most importantly, each exchange has a different compliance framework. Thus, it is important to read the fine print for each exchange, before registering to trade.
To date, there are more than 200 cryptocurrency exchanges that support active trading, and the combined 24-hour trade volume of the top ten is more than $6.5 billion.
Below, take a closer look at some of the major exchanges operating today.
*All data is as of 3:00 pm EST on June 19, 2018. Fee calculations are based on a bitcoin trade worth $1000.
Coinbase: San Francisco, California
|24-hour trading volume||N/A|
|Fees||Purchase fees 1.49%-3.99%; typical $1000 bitcoin cost: $14.90|
Founded in 2012, Coinbase is a wallet, an exchange, and a set of tools for merchants, all built on the same platform. Most consider it to be the blue-chip among crypto platforms. Users can buy, sell, store, and trade tokens, and Coinbase partners with companies like Expedia, Overstock.com, and Dish who want to accept bitcoin payments.
Coinbase was one of the first exchanges to find mainstream popularity in the United States. It was also the first cryptocurrency startup to attain “unicorn” status (a valuation of more than $1 billion). The platform is easy to use and popular with beginners, and it now has more than 20 million accounts. Coinbase’s sister platform, GDAX, is intended for more advanced traders and has far lower fees per trade (see below). GDAX will become Coinbase Pro later this month. In June, the company announced plans to enter the Japanese crypto market, and it recently acquired Keystone Capital in a bid to become an SEC-regulated broker-dealer. In May, Coinbase also announced that it had acquired Paradex, a decentralized exchange platform that allows users to trade tokens directly between their wallets without the assistance of a third party. The company plans to offer this service to international users before making it available to US customers.
Regulation: Licensed to engage in money transmission in most US jurisdictions. Registered as a Money Services Business with FinCEN. Late last year, the IRS got Coinbase to agree to share user account information with it. Tax dodgers, beware.
BitMEX: Hong Kong
|24-hour trading volume||$1.71 billion|
|Fees||Maker/taker fees -0.05%-0.25%; typical $1000 bitcoin contract cost: $0.75 (without leverage)|
|Margin trading||Yes, up to 100x|
BitMEX is the Bitcoin Mercantile Exchange, a platform intended for dedicated traders rather than retail investors. It consistently processes over $2 billion in transactions in a 24-hour period. The platform offers very high leverage on trades, up to 100x. BitMEX is unique in that it offers leveraged contracts (futures contracts and perpetual contracts) that are bought and sold using bitcoin rather than direct ownership of coins themselves. This means that even if users trade in altcoins, all profits and losses will be in realized in bitcoin. BitMEX does not handle fiat currency and is not available to customers in the United States.
Regulation: Registered in the Republic of Seychelles. Little regulation.
Binance: multiple locations in Asia
|24-hour trading volume||$1.26 billion|
|Fees||0.1% trading fee; typical $1000 bitcoin cost: $1|
Launched just last year by Changpeng ” CZ” Zhao, Binance has quickly become one of the world’s largest crypto exchanges. After moving its offices out of China and its servers offshore, Binance now supports more than 130 coins and consistently processes over $1 billion in transaction value over a 24-hour period.