Sharing the trade-offs between each method of trading
“Alt season will never happen again” While that is true to a certain extent, the notion that Bitcoin will be the ONLY cryptocurrency to have any value in the future is really stretching it.
While most altcoins have experienced a 90% price drop from their all-time high, (or in some cases, ICO price) selected altcoins still have a future.
Product development, increasing knowledge of Cryptocurrencies by the masses are a few reasons for us to experience a second “alt season”, although in a different form.
While deciding on which altcoins to invest in is a favorite topic of discussion with everyone in the space, this article focuses on the best ways to trade altcoins.
Factors Of Measurement
Admittedly, this question of the best method of trading altcoins may not be as “sexy” as the question of which altcoin to trade, but it is still important.
It not only determines the amount of profit you can make, it determines how likely you are to lose your altcoins, a very possible scenario.
So how are we going to measure each method of trading altcoins? These are some metrics to consider when deciding for yourself
- Level of convenience
- Level of security
- Level of decentralization
- Price levels
- Commission fees
With that, let us take a look at the usual suspects and other methods!
Fiat To Crypto Channels
Despite being touted as the replacement for cash, it is ironic that Cryptocurrency is bought with fiat.
While mass adoption will change this situation in the future, fiat to Crypto channels are still the entry points for newcomers in the space.
You can buy Cryptocurrency on Coinbase, Gemini Exchange, Bitcoin ATMs and any major exchanges that partner payment channels.
Convenient and widely available in most countries, these platforms charge relatively high commission fees and require you to perform KYC (know your customer) process.
Furthermore, very few altcoins can be purchased with fiat, with Bitcoin and Ethereum being the main tokens available for purchase.
If you are someone who is strongly against KYC processes or wants to purchase an altcoin that is still relatively unknown, this channel is not for you.
Trading On Centralized Exchanges
If you own a significant amount of Bitcoin and Ether, Centralized Exchanges offer one of the fastest methods to buy the altcoin of your choice.
Every altcoin is traded against either BTC, ETH, or any stable coins such as USDT on centralized exchanges. This gives you a wide variety of options when it comes to your altcoin trading.
In general, Centralized Exchanges charge a relatively low commission fee, around 0.1–0.2% trading fees and an additional withdrawal fee.
However, there are a few things to take note when trading on centralized exchanges.
Firstly, there is always a significant security threat as your altcoins are held in “hot wallets” in your exchange account. Even Binance, one of the biggest exchanges in the world experienced a security hack of 7,000 Bitcoins this year.
Secondly, certain Centralized Exchanges are known to carry out trading manipulation. For example, they “pump and dump” altcoins with lower volume.
Furthermore, they can manipulate the order books to earn from the spread and delete open orders right before you execute yours.
These factors lead to a number of users preferring decentralized exchanges to the centralized ones.
Last but definitely not the least, trading on decentralized exchanges is another option to trade altcoins. While relatively few users use this option, it is rising in popularity.
Security and decentralization are the plus points of using a decentralized exchange.
Custody of your tokens stays with you and trading of tokens from different chains is done via atomic swaps (For a complete beginner’s guide read this Forbes article)
What this means is that you are very unlikely to lose your funds from hacks as it stays in your custody. Furthermore, KYC is not needed when trading on decentralized exchanges!
However, liquidity is a major pain point when trading on a decentralized exchange for a couple of reasons. For example, the user interface is not as intuitive as compared to centralized exchanges in general.
Moreover, market making is difficult to carry out, although some decentralized exchanges have used trading APIs to tackle this issue.
Choosing the best method to trade altcoins is as important as choosing the right altcoin to trade. If not considered properly it may cost a substantial amount in terms of transaction fees as well as the loss of your funds in some cases.
In an ideal situation, we can find a trading method that is secure, low cost and has high volumes of liquidity. Unfortunately, that does not exist right now.
Decentralized exchanges are catching up on liquidity and centralized exchanges are continuously improving on their security measures.
In the meantime, understanding the trade-offs between each method will ensure you choose a trading strategy best suited to you.
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