Picking a CEX | Archimedes

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What it's about: The most popular and trust Centralized Exchanges.

Why it's important: Picking one that suits our needs will help us with fees and tax reporting.

Key takeaway: Coinbase is the most trusted for US-based users.

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.

Popular Centralized Exchanges

The three most popular centralized exchanges are Binance, Coinbase, and Kraken.

These are used by first time investors and crypto pros

Binance / Binance.US

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.

Pros (Binance.US):

Cheaper transaction fees
Advanced order types for experts

Cons (Binance.US):

Much less trading volume than Coinbase and Kraken
No built-in digital wallet
Usability is hard, even for experts

For anyone not living in the United States, the list of pros greatly outweighs the cons for Binance.

Coinbase

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.

Pros:

FDIC insurance up to $250k for our USD
The user experience is super easy for a beginner
Built-in digital wallet provided
Trusted by US Regulators and lawmakers

Cons:

Higher trade and commission fees compared to Binance and Kraken
There is a minimum order size of $2
Fewer trade options for experts

Coinbase is often referred to as the Robinhood for crypto because it's beginner-friendly and has a great user experience.

Kraken

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.

Pros:

Lower trading fees compared to Coinbase
Credit/Debit cards offered
High trade limits
FDIC insurance up to $250k for our USD

Cons:

Not available in New York or Washington state
The user interface is not as easy to navigate
Longer user verification process

Actionable ideas

To start, we just need to pick one exchange to get comfortable with the basics.

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.

What's next

Supplementary materials

One of our Archimedes Experts in Crypto walks through the pros and cons of top CEXs.

Top Crypto Exchanges Ranking (Spot) | CoinGecko