How do you use a cryptocurrency exchange?
A cryptocurrency exchange is a gateway to a new asset class. It’s a place to convert from fiat to digital assets or from digital assets to fiat like a traditional currency exchange. It’s also a place to trade crypto assets, not unlike a listed stock exchange.
One can use a crypto exchange to source large blocks of BTC, ETH or other cryptocurrencies through an OTC desk. It can also be used by businesses to convert or manage their cryptocurrency exposure when receiving cryptocurrencies as payment or rewards.
A digital currency exchange may also provide a range of other services typically associated with a brokerage firm. It is a highly versatile business, providing an efficient Swiss Army Knife like set of opportunities for clients and users.
In this article we’ll explore a variety of ways to use crypto exchange including:
- * Money changer or trader?
- * The crypto exchange as a listed liquidity pool
- * The crypto exchange as your local forex shop
- * Is Libra really Libra?
- * Crypto payment, reward and remittance management
- * Gateway to a new payment rail
- * The crypto exchange OTC desk
- * What is the best crypto exchange in Canada?
- * What are your expectations?
- * The future of asset exchange is crypto
Money changer or trader?
When you say exchange, that can conjure up a couple of different images. One might be the place where you go to convert your CAD for USD before a trip stateside. You would do this at a traditional forex exchange or money changer.
A forex exchange can provide a variety of services, including payments, but you probably don’t use a traditional money changer for trading.
You might also envision an exchange as being like the Toronto Stock Exchange or the Venture Exchange, where listed equities, ETF and various funds are traded. Everything listed on these (Canadian) exchanges are quoted in Canadian dollars (CAD). This type of exchange isn’t designed for services like fiat currency conversion or payments.
A cryptocurrency exchange combines the best elements of these two models.
The crypto exchange as a listed liquidity pool
As a trader, you will use the exchange as a gateway to a liquidity pool where you execute your trading strategies. Depending on the exchange, you will go in and out of fiat or various cryptocurrency pairs.
Every crypto exchange has a variety of listings, and these can vary from one exchange to the next. Typically, a crypto exchange will always have Bitcoin (BTC) and Ether (ETH).
On top of that, you will likely find XRP, Bitcoin Cash (BCH), DASH and Litecoin (LTC).
The primary listings will usually be quoted relative to the local fiat currency and sometimes in USD.
The crypto exchange as your local forex shop
Some exchanges will branch out into some of the other 5000 cryptocurrencies or altcoins. These might include Dogecoin (DOGE), Stellar and others.
Of the 5000 altcoins, the majority are typically quoted in one of the leading cryptocurrencies, like BTC or ETH. So an altcoin exchange will have altcoin/cryptocurrency pairs more like a traditional forex exchange.
If you want to buy something like VeChain (VET), Cardano (ADA) or Chainlink (LINK), you will have a couple of steps to acquire them.
- 1) First, if you are in Canada, you would go to a crypto exchange like Bitvo, convert your fiat to BTC or ETH.
- 2) Next, you would add those to your wallet.
- 3) Then you would go to an alt exchange where the altcoin pair you are looking for is available and buy that with your ETH or BTC.
Is Libra really Libra?
One potential problem with various crypto assets is figuring out if you are buying the one you’re looking for. A great example is Bitcoin vs Bitcoin Cash vs Bitcoin SV, which are all different entities.
Or, if you’re looking for Facebook’s Libra, you might end up finding information about an altcoin called Libra Credit (LBA) also known as Cred. Cred is not the same as Facebook’s Libra.
Now, if you do, in fact, want LBA, you simply follow the same process as other internationally listed altcoins. You would buy some ETH or BTC with CAD on the Bitvo Exchange. Load your wallet. Then take your ETH, BTC or whatever you are using to an alt exchange to buy LBA.
Gateway to a new payment rail
Crypto exchanges also help you access a fast, cheap, reliable payment rail. Examples of traditional payment rails would be those used by Visa and Mastercard, or the Swift Network.
Existing payment rails have some drawbacks associated with them. These may include the cost of transfers and potential delays depending on the transaction and the intermediaries.
While BTC is also a payment rail, its volatility provides additional challenges when used for payments or remittances. So alternative crypto assets have been developed for payments using the Ethereum architecture and smart contracts. These are known as stablecoins.
In one iteration, a stablecoin is backed 1 to 1 with fiat currency. Stablecoins provide the same benefit as traditional payment rails, but do it cheaper and instantaneously.
So if you want to make fast efficient payments, with low transaction fees, and low volatility, you can use the Bitvo Exchange to convert cad to QCAD.
Crypto payment, reward and remittance management
While a cryptocurrency exchange provides a gateway into a range of cryptocurrency networks for individuals, it’s also an important tool for business.
Businesses can use an exchange to manage their remittances or payments. If they receive BTC or ETH for payment, they can convert those onto CAD or QCAD depending on their needs. This allows a business to manage the volatility of those payment streams or lock in prices.
Crypto businesses like crypto miners can lock in the value of their cash flow by converting into fiat so they can cover expenses and provide profits to shareholders.
The cost of traditional payments for businesses is typically very high. So those using crypto can shave percentage points off this business cost.
The crypto exchange OTC desk
Part of the Swiss Army Knife aspect of a crypto exchange is the presence of an institutional or OTC desk in the operation.
In a traditional brokerage firm, an institutional desk (I desk) acts as an intermediary between various large clients and institutions. This operation provides a variety of services, including acquisition and distribution of large orders for a given asset. This desk has relationships that help with the efficient pricing and transfer of assets between large traders.
The term OTC or over the counter in traditional finance typically applies to making markets for unlisted securities, or those not listed on an exchange. Assets traded OTC include some equities, bonds, government securities, and some derivatives.
On a crypto exchange, the OTC desk acts like both an OTC and internal institutional desk. This specialized desk is designed to provide customized services to large traders and institutions. These services include advising on execution, sourcing liquidity, market intelligence and order management.
What is the best crypto exchange in Canada?
Every exchange is biased, of course, so “the safest” or “the best” crypto exchange in Canada is a matter of opinion. At a minimum, any crypto exchange you use in Canada, should have high security standards and be registered as a Money Services Business as of June 1, 2020.
Whether an exchange best fits your needs will be based on your expectations and how you use it. For example, if you are trading, you might expect:
- 1) Fast transaction speeds
- 2) Fast withdrawals and a flexible cash card option
- 3) Proprietary technical analysis tools to assist in your trading strategy
- 4) Educational material designed to help you as your trading acumen advances or if to help you if you aren’t progressing as fast as you want.
- 5) Access to real people when you have a support issue.
What are your expectations?
If you are a business, fund or individual doing large transactions through a crypto OTC desk, you might expect:
- 1) Specialized knowledge and relationships
- 2) People with financial experience
- 3) Personalized service
- 4) Demonstrated experience as a fiduciary in a regulated environment
- 5) Understanding of the dos and don’ts on a traditional institutional desk
As an individual looking for a gateway into digital assets, you will likely want a secure, easy to use experience. And as a user, you will want the convenience of having access to your funds quickly.
So the best crypto exchange comes down to what you want, expect and how you use it.
The future of asset exchange is crypto
Like Bitcoin, a cryptocurrency exchange opens up the world of digital assets to everyone for a variety of purposes. You can use it as a gateway, conversion tool, access to a payment rail, or a liquidity pool for frequent trading activities.
Crypto exchanges have been able to combine essential elements of traditional finance with next-generation technology. This provides you with a fluid, 24/7, international market of like-minded cryptocurrency traders, users and enthusiasts.
Welcome to the future.
Bitvo provides traders, institutions and individuals with access to a secure, fast, easy to use 24/7 cryptocurrency exchange.
Clients also get access to the exclusive Bitvo Cash Card and the Bitvo Same Guarantee as they buy, sell and trade ETH, BTC, QCAD, LTC and more.