Coinbase and Binance are two of the largest cryptocurrency markets online today. Coinbase is one of the oldest and most well-established markets. It was founded in 2012 and currently trades publicly on the NASDAQ exchange. Binance was founded in 2017 and, while originally based in China, now operates out of the Cayman Islands where it can operate in a relatively unregulated manner. Here’s what you need to know about both platforms. Consider working with a financial advisor as you pick a cryptocurrency market.
Coinbase: Good for Mainstream Investors
Although cryptocurrency has only been around a short time, it’s already expanded into a wide, convoluted universe that can be difficult to understand for the uninitiated. But with Bitcoin and other cryptocurrencies seeing wild fluctuations in price, there’s an opportunity for big gains – if you can stomach the risk. One of the main platforms is Coinbase.
Coinbase is a U.S.-based crptyocurrency trading platform. At time of writing it offered more than 50 different currencies to trade, including all of the major cryptocurrencies such as Bitcoin, Ethereum and XRP.
The selection of tokens for trade is simultaneously Coinbase’s biggest strength and one of its biggest weaknesses. While it has all of the tokens that most mainstream investors will trade, Coinbase only offers a very small portion out of the thousands of cryptocurrency assets on the market today. For most investors, this is generally a good thing.
One of the definitional problems of the cryptocurrency world is the degree of fraud and mismanagement in digital assets. By some measures, more than one in three new tokens introduced are scams (typically fraudulent operations built to steal investors’ money by offering a non-existent product). Many others exist in an area that is legally dubious at best, putting investors at risk of losing their money if the Securities and Exchange Commission or other regulatory agencies crack down on any given cryptocurrency asset. Between fraud and legal issues, fringe cryptocurrency assets can pose an enormous risk for investors.
Coinbase offers a limited set of assets that have generally been vetted, and it imposes KYC (Know Your Customer) protocols that help reduce incidents of fraud. As a result, sophisticated traders may not find the kind of new and emergent assets that the broader market has not yet discovered. However, investors will also not be exposed to the kind of risk that comes with the fraud and loose legality that often comes from the cryptocurrency market.
Coinbase is oriented toward the retail market, and it shows in the product’s design. Trading is clear and well displayed. Investors can easily find pricing, volume and other relevant data, and executing trades is very straightforward. This is a particularly valuable design element given that cryptocurrency, like all currency marketplaces, allows users to swap any given currency in an investor’s portfolio. This can quickly lead to highly complicated markets, and Coinbase’s ease of use is particularly worthwhile.
This market also comes with significant and valuable resources for investors to learn how to work in cryptocurrency overall. Coinbase offers educational resources and articles to help traders learn the market.
However, this ease of use comes at the cost of sophistication. The market’s trading screens are easier to understand because they don’t necessarily have all of the technical data that an investor might look for, and the same is true of its tools for executing trades. This will not be a problem for most investors, but those who are looking for very sophisticated trading may hit an upper limit with Coinbase.
Coinbase is not cheap. This platform charges 0.50% for all trades under $10,000, with a sliding scale of reduced fees for trades beyond that point. It charges 1.49% for all purchases made using a bank transfer, and 3.99% for all credit and debit card transactions. As will be noted below, this is more expensive than Binance.
Binance: Potential Value, Potential Risk
Whatever else the weaknesses and strengths of Binance may be, be aware that, as of mid-2021, a lack of regulatory compliance meant Binance was not available to U.S. investors. Their platform Binance U.S. is a subsection of Binance’s primary markeplace; however, it generally offers fewer products to trade and has higher rates.
At time of writing, Binance advertised more than 500 cryptocurrency assets that investors could trade. In theory this makes it a much better market in which to find undervalued and emerging assets, as opposed to Coinbase, which mostly hosts cryptocurrencies that are already well established, although readers should note that Binance U.S. only offers roughly 50 cryptocurrencies to trade. At the same time, the fact that Binance avoids most regulation and does not conduct the same Know Your Customer process as Coinbase means that it can much more easily add new assets.
All together, this makes Binance a better market for speculators if these assets were safe. However, in cryptocurrency, that is a significant leap.
As noted above, the cryptocurrency market is currently rife with illegal and fraudulent assets. On Binance, these assets will be listed side-by-side with legitimate cryptocurrency assets. This creates an enormous risk for investors, who cannot easily tell the difference between a token that is undervalued and one which the market is avoiding because it’s a scam.
In a different market, Binance’s light-touch approach would make it a better choice for speculators who want to get into undervalued assets. In cryptocurrency, this approach primarily makes it a minefield of investments that may vanish at any given moment. Particularly sophisticated investors may find some value here, but should also take care.
A good test of whether the Binance trading platform is a good fit for you is to review this phrase: “Binance offers custom API keys and custom-charting for investors.” If that phrase makes sense and seems appealing, Binance’s toolkit might be a good fit for you. If not, then Binance may not be for you.
Binance offers a depth of trading data that Coinbase does not. You can pull more data, and more sophisticated data, and build charting options in a way that the competing platform does not support. The same is true of trading positions. Investors on Binance can build far more complicated trades than Coinbase supports, and access to API keys means that particularly advanced users can even create their own third-party services and link them to Binance’s platform.
All of this depth, however, comes at the expense of ease of use. Retail investors may find themselves lost in Binance’s toolkit. If all you want to do is buy low and sell high, it’s easy to get lost among the options to set post-only orders and pool liquidity.
As is often the case with trading platforms, simplicity and sophistication are somewhat in tension. Binance offers the complexity that advanced traders – as opposed to retail investors – may need, at the cost of the simplicity that Coinbase offers for retail investors.
Binance offers considerably cheaper rates than Coinbase. The platform charges a fee of 0.10% on most trades. It charges 0.10% for bank purchases and up to 2.10% for all credit/debit card purchases.
These fees are significantly less than Coinbase’s, and in particular will be valuable for high-volume traders who can see much of their margins eaten up by Coinbase’s higher fees.
The Bottom Line
In a different market it would be easy to recommend Binance as the sophisticated counterpart to Coinbase’s retail option. However, investing in cryptocurrencies means dealing with numerous scams, and being relatively unregulated could mean that Binance’s clients could be at greater risk than those of rivals. They do offer better prices and more sophisticated tools, but most investors should pick Coinbase anyway. Coinbase offers fewer products to trade and generally charges higher fees than Binance.
Tips on Investing
Let’s keep learning what cryptocurrency is and how the market moves. In our introduction to the ICO, we discuss how new coins enter the market and what the process of expanding the crypto world looks like.
Choosing the right tool for making your trades is essential. While you can and should do your own research, ultimately nothing is as valuable as getting advice from a financial advisor. SmartAsset’s matching tool can match you with a financial professional in your area who can help you pick trading tools for your own needs and long term plans. If you’re ready, get started now.
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