There are over 150 active cryptocurrency exchanges of vastly different volumes with thousands of different trading pairs. While many altcoin traders spend most of their time on Binance, Bittrex, and Poloniex, there are dozens of alternatives that other active traders choose over the larger platforms every day. There are plenty of benefits to be experienced through the use of smaller exchanges, and in some cases, they may be the optimal choice. Read on to find out why.
It’s no secret some larger exchanges struggle with customer support and transparency. Poloniex had a host of troubles earlier this year that led people to migrate to Bittrex, and now Bittrex is experiencing very strained relations with its users. For traders who find themselves the victim of some situation or another, their pleas for help can go unheard for weeks or even months.
Due to their more limited size and usage, small exchanges are able to maintain active communication with their users. Many smaller exchanges offer Telegram, Discord, and Slack rooms to foster direct communications between users and team members. A community environment is created, and traders have a better sense that their comfort and success is the primary focus of these teams.
With lower volume comes less liquidity. This means that when market buys and sells take place, they have a bigger impact on the order books. Patient traders can reap easy profits by placing high sells and low buys relative to the current market price of a given coin. If these orders are placed on coins that are also traded in high volumes on larger exchanges, the illiquidity is no burden. Profits can easily be realized by transferring their coins or BTC to a larger exchange, where they can instantly sell for more or buy for less than the price of their orders on the smaller exchange. Of course, if one decides instead to remain patient and keep their trades on the same exchange, they can be rewarded with an even higher sell or lower buy.
Protection Against Altcoin Bloodbaths
When Bitcoin rallies, the BTC value of altcoins generally suffers. While this is typically the case, there is actually a subset of coins which tend to perform well relative to the market. When traders dump their altcoins to chase Bitcoin, they often do so on the larger exchanges. Coins that are only traded on smaller exchanges have historically maintained their value in terms of BTC. RaiBlocks, which is primarily traded on BitGrail and Mercatox, is perhaps the most prominent example of such a coin. Before its recent explosion, the coin had maintained a steady XRB/BTC rate for almost six months, holding steady through multiple major altcoin market downtrends.
As mentioned previously, smaller exchanges tend to have higher volatility due to lower volumes and smaller order books. As a result, price disparities among smaller exchanges emerge frequently. When a coin simultaneously experiences a large sell on one exchange and a large buy on another, there is profit to be made in bridging the gap, so to speak – buying up the cheap coin on one exchange and then selling the expensive one on the other, or vice versa. In order to avoid volatility, transaction times, and fees, it is sometimes best to convert to Dogecoin or another stable, cheap, and fast currency offered on both exchanges, rather than move Bitcoin, Litecoin, or another slower coin. This is a very safe way to earn continuous profit for savvy traders, and many individuals are taking advantage of these methods. Cryptopia even has an entire page dedicated to arbitrage.
Protection Against Exchanges Themselves
It’s no secret that exchanges get hacked, shut down, and frozen in the cryptocurrency world. The more exchanges your hot funds are spread amongst, the less such occurrences will affect you. If all your funds are on Bittrex, for example, and your withdrawals are frozen, you’re in a very sticky situation. However, if your coins are equally spread on 10 exchanges, losing access to 10% of your funds will not break you. Obviously, storing coins off exchanges entirely is the best defense against these situations, but for the actively-traded balances that must stay on exchanges, this approach is the next safest bet.