Become a better investor
Lesson in Course: Crypto (beginner, 7min )
We want to open an account on a CEX, but how do we choose one?
Centralized exchanges (CEXs) allow us to convert our fiat money into crypto and back. We may have heard about a popular CEX, Coinbase, in the news with their direct listing. However, if we already have a Robinhood brokerage account, we may know that we can also buy crypto on Robinhood. It's important to note that Robinhood is not a CEX!
Robinhood is a crypto broker that facilitates transactions, enabling us to purchase stock and a limited number of cryptocurrencies. Since they are a broker, we can't move the coins from our Robinhood account into our own digital wallets. Instead, Robinhood requires us to sell our coins (causing us to pay taxes on any gains) and transfer the settled cash.
A true CEX, like Coinbase, offers a broader selection of crypto and provides a secure platform for new investors to dip their toes into crypto in ways not possible with brokers, like Robinhood. We have greater control and can use our coins instead of only being able to speculate.
The three most popular centralized exchanges are Binance, Coinbase, and Kraken.
Binance has the most volume traded compared to any exchange and supports more than 300 other coins. Binance is essentially the crypto equivalent to the NYSE.
Regulations recently made Binance unavailable to investors in the United States. Instead, Binance.US is available, which is a spin-off product from Binance.
For anyone not living in the United States, the list of pros greatly outweighs the cons for Binance.
Coinbase is the first crypto CEX that has gone public. It is listed on the Nasdaq as COIN. Coinbase is one of the most trusted exchanges with increased scrutiny since they are operating as a publicly listed company. In addition, Coinbase is one of the most beginner-friendly CEXs in terms of usability.
Coinbase is often referred to as the Robinhood for crypto because it's beginner-friendly and has a great user experience.
Kraken is more popular among European users as opposed to US users. Not all users in the US can access Kraken. However, it is one of the few crypto banks that also offers credit card and debit card services.
One of our Archimedes Experts in Crypto walks through the pros and cons of top CEXs.
As we become more advanced crypto investors, we may have multiple CEXs for additional access to coins and to reduce counterparty risk by spreading out our money. If any of these exchanges get hacked, the FDIC insurance only covers what we have in US dollars. It will still be up to the CEX to figure out how to recover the stolen coins.
If we decide to invest heavily in crypto, having multiple CEXs is a required risk management strategy.
To start, we only need to pick one to get comfortable with the basics.