Choosing the Right Exchange: Best Options for Buying Bitcoin in 2023

Cryptocurrency exchanges work the same as any other online brokerage. Bitcoin can be bought and sold the same way you would purchase stocks, bonds, or foreign currencies. There are a lot of such exchanges and investors should take their time when choosing which one to use.

In this article, we’ll dive into how to buy Bitcoin in 2023 and what to look for in cryptocurrency exchange. The decision also depends on the amounts you plan to buy and what other purchases you may want to make on the exchange.

Different Types of Exchanges

 There are two main types of crypto exchanges: decentralized and centralized exchanges. Both of these have their upsides and downsides and they are suited to different types of investors.

Decentralized Exchanges

Decentralized exchanges distribute the responsibility for verifying and facilitating crypto trades. In this regard, they are somewhat similar to the way blockchain works. This increases accountability and transparency.

The downside of using this type of exchange is that they are not user-friendly and novice investors who are not tech-savvy are going to have a tough time navigating them.

Centralized Exchanges

Centralized crypto exchanges are managed by a single agency. That’s how most cryptocurrency exchanges work. Some investors object to this approach to trading since they see the decentralized nature of cryptocurrencies as their biggest asset.

One of the biggest issues these exchanges are facing is the fear of hacking. Since the exchanges are centralized they are somewhat easier to hack.

Fees

Crypto exchanges charge fees on every transaction. Investors need to be aware of these and they are one of the most important factors to consider when choosing to use a certain exchange platform. In most cases, there are trading fees and withdrawal fees.

Trading Fees

Trading fees are charged when an investor makes a trade on the crypto exchange. Sometimes it comes in the form of a flat percentage. This means that the percentage of the amount traded is paid to the exchange regardless of the amount in question.

There are also exchange platforms that claim they don’t have any trading fees. This isn’t entirely accurate since they usually charge a fee for registering and using the exchange in the first place.

Withdrawal Fees

Withdrawal fees are charged when you withdraw funds from the crypto exchange. This is usually considered to be a more generous approach to fees. It allows investors to trade as much as they want before paying any fees.

However, withdrawal fees are usually somewhat larger than transaction fees. Before choosing which platform to use, a player should be aware of its fee structure and have a plan on how they plan to use the exchange.

Other Fees

There are also additional fees you may need to cover when you engage in some more complex trading practices. For instance, margin trading usually requires a higher fee since it generates more profits.

Exchange Security

 One of the most important features to look for in a Bitcoin exchange is its security. Centralized exchanges can be hacked, and an investor should closely examine the security features of an exchange before using it.

Investors often use cold wallets to move their funds from an exchange to a safer offline environment. These storage options can’t be hacked since it’s not connected to the internet at all.

Many also choose to use more than one exchange to minimize the risk of hacking. If the fees and the overall user experience are roughly the same, this can be a good way to hedge your bets and make sure your funds are secure.

What Coins Are Available

 Another important feature to take into account when choosing a crypto exchange, are the coins that you can trade. This doesn’t always mean that the exchanges that have more coins are better. If you only plan to trade a few coins and an exchange caters to those coins, you’ll do just fine.  Those smaller exchanges usually provide better conditions overall, since they can compete by the size of their offer.

Keep in mind that your needs may change over time and you may need to move on to a larger exchange which allows you to train in additional coins.

Trading Volume

 The availability of coins alone isn’t enough to choose an exchange. It’s also important to choose an exchange with the proper trading volume. The goal is to find an exchange with a high enough trading volume to make sure you’re liquid.

If there’s not a lot of volume and you put an order in, that’s called slippage. In the long run, this can lead to additional costs for investors on sales themselves.

You should also look for exchanges that allow for different types of trading. New types of trades are still evolving. It's a good idea to choose exchanges that add additional types of trades as they come about.

Accessibility

 Not all crypto exchanges are available in every country. It’s therefore essential to find an exchange that is accessible to you if there are some restrictions on which exchange you can use in your country. There’s little to be done if the exchange is blocked in your region.

At this point, China has the most restrictive policy when it comes to which exchanges you can use. In the rest of the world, most exchanges are widely available, but every country has its own tax policy on the earnings you make.

How Much Money you’ll need

 There’s no simple answer as to how much money you need to use a crypto exchange. Some allow the users to buy just a fraction of the Bitcoin, while others are oriented towards larger investors and you need to have enough to buy much more.

Smaller exchanges are usually a good learning opportunity. They allow the investors working with a smaller budget to get a feel for the process and possibly earn a little bit along the way. As you expand your budget and your portfolio, you should move on to a larger exchange.

Do Crypto Exchanges Report You To The IRS

 Yes. Most if not all US-based Bitcoin exchanges report your winnings to the IRS. The industry is now more regulated and there’s no way for investors to avoid their tax obligations. Some exchanges based outside the US Still have a policy of not reporting to US tax agencies.

If you’re based in the US there’s no point to using these exchanges since you’ll need to transfer your funds to the US at some point. More regulations do need more expenses for the investor, but it also brings security to the industry.

Conclusion

 Bitcoin exchanges are used to buy and sell cryptocurrencies. There are plenty of exchanges to choose from and it’s important to consider all the relevant factors before deciding which one to use. The most important of these is how safe the exchange is and what kinds of coins you can buy and sell.

It’s equally important for the exchange to have a trading volume that will provide the investors with enough liquidity. In the end, not all exchanges are available in every country and that can be a deal breaker depending on where the investor is based. Regardless of which exchange you decide to use, your tax obligations remain the same.

Author:

Eno Eteng
I am a certified financial technician with a Diploma from the UK Society of Technical Analysts.