Whether for profit or obtaining another currency, trading has been at the heart of the fiat currency ecosystem. The cryptocurrency realm is no exception to this phenomenon. Considering cryptocurrencies didn’t exist until 2009, the overall crypto trading ecosystem has made substantial progress over the last decade.
According to a recent study by Bloomberg, the top ten cryptocurrency exchanges are bringing in as much as $3 million per day as fees, and steadily heading towards $1 billion a year. However, almost all top-earning crypto exchanges are centralized where crypto coins get traded much like the share trading on well known New York Stock Exchange.
Most traders are likely to begin their journey through a centralized exchange as they offer a variety of benefits to both individual and institutional traders.
Read on to know more.
A. Advantages of Centralized Cryptocurrency Exchanges
The reason centralized crypto exchanges have become popular is that they offer several advantages to both individual and institutional traders.
1. They Are Usually Regulated
One of the most touted benefits of centralized crypto exchanges is government regulations. Most exchanges have to get a trading license and follow the KYC and AML regulations set by the respective government authority. Traders have to submit an identity proof to open an account with the exchange.
Many investors may find it easier to invest in a regulated and licensed centralized exchange than a DEX considering their jurisdiction. You can also hold these exchanges responsible and take the appropriate legal action to recover your investment.
2. Fiat to Crypto Conversion
Another principal advantage is that you can convert fiat into crypto and the other way around through a centralized exchange. However, decentralized exchanges (DEXs), allow the only crypto to crypto transactions as they are mostly unregulated.
Also, decentralized exchanges can’t accept payments through bank wires and credit/debit cards owing to their unregulated decentralized nature. Most CEXs can also make out payments in fiat currencies should you choose to withdraw your funds.
3. Large Volume and High Liquidity
Being regulated, most institutional and individual crypto investors are interested in trading only through centralized exchanges. In fact, nearly 99% of cryptocurrency trading volume remains on centralized exchanges. Large volume lends higher liquidity, allowing traders to complete their transactions quickly. As a result, you can capitalize on the smallest price movement to make a profit.
4. Price Stability
Centralized exchanges also lend price stability. The extreme price volatility not only negatively affects the crypto traders but also the projects that rely on the cryptocurrency for finances. It also makes a crypto asset abstract, hard to spend, and inefficient, prohibiting it from going mainstream. As CEXs control most of the flow of cryptocurrencies, they can avoid sudden volatile price movement.
5. Network Stability
Using the centralized crypto exchange software for listing and trading a newly mined crypto coin provides your project with initial stability. It helps you build better product awareness in the crypto community as your asset gets exposed to hundreds of traders from the start.
Once your crypto asset establishes itself, trading it over decentralized exchanges with low trading volume and more safety becomes a viable solution. For the time being, this is the most practical approach to develop your crypto project in a more stable and enriching environment.
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