Trading cryptocurrency is already risky enough because of the price volatility. The last thing you need to add to that risk is a hack, rug, or scam. In this article we will cover the safest crypto exchange and give you some general crypto safety tips and practices.
Note: None of this is financial advice. Always do your own research. Cryptocurrency is risky and any exchange can theoretically fail.
Why The Fud?
Centralized crypto exchanges have custody of a lot of money and so they are targets, put at risk by a variety of things. The main risks to a crypto exchange, and so therefore also an exchange user, are: a hack, mismanagement/scam of funds, or a bank run.
Centralized Exchange Hacks
Centralized exchanges (CEXs) have to keep money in hot wallets and cold wallets so that they have the liquidity to back their investments if users want to withdraw. These wallets are huge honeypots for hackers who want to extract those funds.
Hackers may do this by getting control of private keys and passwords, finding a security breach in smart contracts or other tech savvy ways.
Mismanagement of Funds
Many apps and exchanges offer users the ability to earn a yield on their funds.
The general business model of these yield apps is to extract away a lot of the complications and risks of defi, staking, or trading strategies by doing it themselves on the back end. They then give users and easy “just deposit and earn” on their front end.
For instance, (made up numbers) they can offer users 2% on Ethereum because they feel they can safely earn 5% by using those funds in more complex Defi strategies or even p2p lending. AKA, they do the complicated stuff and take a 3% cut of the earnings from your money.
For the most part, this is fine and how the world works. Banks do the same thing. Your money isn’t just sitting in a box at a bank. They too are lending it out.
However, things can go wrong more quickly in Crypto. Particularly because there is no FDIC insurance. Celsius is a prime example.
Celsius was/is a crypto lending platform that gave users a flat rate return on their deposits. They put a lot of user funds into Terra’s UST (which completely lost all value) and stETH (which started to depeg) amongst other more risky strategies.
Suddenly their reserves couldn’t match depositors’ deposits. People caught wind and a “bank run” ensued.
Which leads to the next point…
Bank Run (Social Hack)
Money moves fast. The only thing that moves faster is gossip. The moment someone catches wind that you may be going insolvent and starts to spread it on Twitter things can get out of hand quickly.
No matter if the rumors are true or not, the prophecies can become self-fulfilling. If enough people believe that the company will go insolvent, they will race to take their funds out. Even if they only kind of believe it – better safe than sorry.
So, all the sudden, a company that was maybe in a little trouble or even doing fine, saw money flying out of it at a pace they could have never planned for. To keep their heads above water, they have no choice but to pause withdraws or completely go belly up.
This happened to Celsius and Voyager in the most recent bear market of 2022.
The Safest Way To Store Your Crypto
The safest option for storing your crypto is in a non-custodial cold wallet. Basically, that means no one can access or freeze your funds but you. You’re the only person with the private key and seedphrase.
On top of that, you keep those private keys and seed phrases completely offline and in a secure device that is further protected by a pin.
We highly suggest you check out the most popular crypto wallets, ledger or Trezor, and keep a majority of your crypto wealth in your own custody.
Further Reading: Augusta Precious Metals Review
Safest Crypto Exchange
Centralized crypto exchanges still have their advantages. So if you’re going to use a centralized exchange – in our opinion what is the safest crypto exchange?
FTX & FTX.US
FTX is an extremely large company and has a fantastic reputation. They even offer an earnings product for both us and non-us customers.
On top of that, they are extremely large and helped bailout other crypto companies, like blockfi, during the most recent bear market. They also own a large portion of robinhood.
Now, nothing is ever too big to fail (think Lehman Brothers), but FTX has to be one of the safest crypto exchanges out there.
Coinbase is a publicly traded company and the company that really put crypto on the map. It is US based and does an extreme amount of volume.
On top of that, coinbase has a product Coinbase One where you can ensure your personal account up to $1 Million.
Binance is the most trafficked, highest volume, crypto exchange in the world. Again, nothing is ever to big to fail, but a sudden collapse of Binance would be shocking.
The company offers non-us residents futures trading, and US residents can also gain access to plenty of coins using Binance.us.
Leaving other exchanges off the list like Huobi, Kucoin, and Pionex doesn’t mean they are unsafe. Again, it’s possible for any exchange to fail – however, if you stick to the larger exchanges you should be relatively safe.
That being said – I would NEVER keep an absurd amount of money (life savings) on a centralized crypto exchange. No matter the yields, it isn’t worth all of that going to zero.
You might be ok in a coinbase one account or FTX, or Binance – but is might worth it?
Spread Your Risk
The move is to keep a small amount on exchanges for trading and take things out as your investment grows. It also makes sense to spread your risk around a few exchanges. You can keep savings in attractive yield products, but don’t put all your eggs in one basket. Be sure to keep enough “real money” in an FDIC insured bank and I’d also hold some crypto savings in your own non-custodial wallet using a hardware wallet like the ledger.
If you want an aggregate view of all your holdings across various centralized exchanges and to use bots to trade you can try out 3commas. With 3 commas you connect to various exchanges via their API.
From there, 3Commas pulls in the data and gives you an overview of yoru holdings across teh exchanges. 3Commas doesn’t hold your money itself. THat way you can see what you have where all in one place, but not actually have the risk of having it all in one place.
On top of that you can create crypto trading bots through 3commas that will automate your trading activity across all exchanges.
What is the Safest Crypto Exchange Conclusion
Trading crypto is risky. Theoretically, any exchange can collapse overnight. However, that’s true with anything, we’ve seen it in traditional finance with major banks like Lehman Brothers collapsing in an instant.
That said, if you stick to the biggest exchanges: FTX, Coinbase, and Binance you should be good. On top of that, be sure to hold your crypto savings in a non-custodial hardware wallet. That way no one can ever access or freeze it but you.
It’s a wild world out there in web3. Have fun, but be safe.