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The Safest Ways To Trade Crypto

Written By

Jemma Grist

Written By

Jemma Grist

Jemma is a writer, editor and fact-checker focused on retail trading and investing. Jemma brings a unique perspective to the forex, stock, and cryptocurrency markets and works across several investment websites as a researcher and broker analyst.

» Jemma Grist Profile Page

Edited By

Tobias Robinson

Edited By

Tobias Robinson

Tobias is a partner at DayTrading.com, director of a UK limited company and active trader. He has over 25 years of experience in the financial industry and contributed via CySec to the regulatory response to digital options and CFD trading in Europe. Toby’s expertise and dedication to financial education make him a trusted voice in the industry, including a BBC investigation into digital options.

» Tobias Robinson Profile Page

Fact Checked By

William Berg

Fact Checked By

William Berg

William contributes to several investment websites, leveraging his experience as a consultant for IPOs in the Nordic market and background providing localization for forex trading software. William has worked as a writer and fact-checker for a long row of financial publications.

» William Berg Profile Page

Updated

Nov 11, 2024

Instability and fraud in the crypto markets have seen several major exchanges freeze withdrawals, require large bailouts or even collapse. As a result, many investors are looking for the safest ways to trade crypto.

So with the FTX saga still fresh in traders’ minds, this guide unpacks the safest ways to buy, sell, store, trade and invest in cryptocurrencies, from derivatives like CFDs to staking and digital wallets. We also rank the most secure cryptocurrency trading platforms in 2024.

Increasing Safety & Security Concerns

Staying safe while trading online has always been a priority for many investors, but events in the crypto space have highlighted the need for users to find the safest ways to trade Bitcoin and other cryptocurrency:

• Despite CFTC regulation and its position as the third largest crypto exchange, FTX shocked the industry by filing for bankruptcy after it couldn’t meet $6 billion in customer withdrawal requests. Allegations of illegal co-mingling of funds have been levied against the firm, with its founder Sam Bankman-Fried arrested on fraud charges.
• Digital asset lender BlockFi also filed for bankruptcy in the wake of the FTX scandal. The company suffered large losses on loans to Three Arrows Capital, a cryptocurrency hedge fund that went under. FTX had provided a lifeline in the form of a $400 million revolving credit facility, but after it collapsed, BlockFi followed suit with 100,000 creditors and liabilities of $10 billion.
• 2022 also saw the collapse of the Luna token and its associated stablecoin, highlighting the risks of investing in digital currencies that claim to be backed by fiat reserves. The price of Luna fell by 90% in just three days, with $60 billion disappearing and countless investors left out of pocket.
• Experimental crypto bank, Celsius Network, also went under in the same year after being unable to navigate market volatility and soaring inflation. The firm collapsed with over $2.8 billion in debt. Its founder has since been accused of running a Ponzi scheme.

So with the mismanagement and collapse of multiple high-profile crypto companies alongside significant market volatility (even by crypto standards), what are the safest ways to trade crypto?

Crypto CFDs

Traders can avoid exchange risk altogether by using derivatives to speculate on cryptocurrencies rather than buying and investing in the tokens themselves.

Derivatives like crypto CFDs allow investors to trade digital currencies without holding tokens on an exchange or in a digital wallet. Traders simply speculate on the price of an underlying asset like Bitcoin, often using leverage (a loan from an online broker) to increase their position sizes and potential profits.

Importantly, CFDs eliminate the issues surrounding how to safely manage and store cryptocurrency, as traders only have exposure to the asset through an intermediary.

So for individuals looking to make short-term predictions on the price of digital assets, CFDs are arguably one of the safest ways to trade crypto and a superior investment vehicle.

However, cryptocurrency CFDs won’t meet the needs of all investors. Traders won’t be able to make payments in digital currencies (as they don’t own them). Also, overnight holding fees mean crypto CFDs probably won’t suit longer-term investors. Additionally, cryptocurrency staking and spot/futures arbitrage is not possible.

Crypto Wallets

While holding crypto on an audited exchange offers a compromise between accessibility and security, the safest way to store cryptocurrency in the long term is in a segregated wallet.

Investors can use two types of crypto wallet: a “hot” wallet and a “cold” wallet.

Hot Wallet

A “hot” wallet is a software or app-based solution to store crypto tokens. This source requires a connection to the internet and stores your keys on the cloud.

While less secure than a cold wallet, and vulnerable to hacks and outages, the benefits of a hot wallet are its accessibility and price. As a result, a hot wallet will be a relatively safe and low-cost app for managing and investing in digital currencies.

Cold Wallet

A “cold” wallet is a piece of external hardware specifically designed to store cryptocurrency tokens.

A cold wallet is the safest place to hold crypto, as it is not connected to the internet, though trading your tokens is a longer and less straightforward process.

Cold wallets can also be substantial investments, so this method best suits investors who wish to hold a significant amount of crypto tokens in the long term.

Crypto Staking

Some long-term investors also use crypto staking to generate passive income from their digital currency holdings.

Proof-of-Stake (PoS) blockchain networks use staked tokens to validate transactions and compensate investors with coin rewards. Investors can earn substantial yearly returns of over 20% with some tokens.

With crypto staking becoming increasingly popular, some DeFi platforms are offering even larger payouts using proprietary governance tokens. However, some firms rely heavily on proprietary tokens without any real underlying value. As a result, these tokens can be heavily affected by general market instability and crash quickly. This can leave investors with fractions of the value of their rewards, or even cripple a whole platform.

In terms of coin staking itself, investors should only commit to fixed-term staking on projects with solid fundamentals and proven financial backing.

Staking should also only be conducted on the safest cryptocurrency trading platforms. This is because, with fixed-term crypto staking, traders cannot access their funds to sell into another token or withdraw from a platform entirely in the event of a significant dip.

Choosing A Safe Crypto Broker

Some industry ‘experts’ claim that regulation is the most important marker for broker or exchange safety. However, due to the sporadic regulation of the crypto sphere, there are other means to help investors discover the safest cryptocurrency trading platforms.

Furthermore, the CTFC regulation of FTX was not enough to prevent its collapse – so investors can be forgiven for favoring more concrete reassurances regarding firms’ fund safety measures.

So, what should traders look for when deciding what is the safest crypto trading platform?

Accounting Procedures

The best and safest ways to trade crypto are through brokers or exchanges regularly audited by an independent third-party body.

Proof of reserve audits verify that crypto firms hold enough segregated reserves to cover all of their investors’ funds. This means that a “bank run” like what occurred with FTX should not happen. Essentially, if en-masse withdrawal requests come flooding in, the company should be able to pay all of its customers.

While this will not protect against market volatility, using an audited broker with robust accounting procedures is arguably the safest way to trade cryptocurrency.

However, investors with no immediate need to trade or stake their crypto funds can further protect their digital assets by taking funds off an exchange.

Data & Fund Security

Even if investors utilize the safest ways to buy bitcoin, they can still be vulnerable to hacks (with the exception of cold wallet users).

To minimize the impact of a data leak on investors’ online identities, use separate, strong passwords for each platform login.

In addition, set up two-factor authentication (2FA) on hot wallets, crypto brokers, and exchanges for enhanced login security. Some platforms allow for separate 2FA for different features, such as logins and withdrawals, to offer maximum protection.

While following these measures makes a hack less likely, if a crypto trading platform is compromised, investors could still lose their funds. So ultimately, the best way to minimize losses from an attack is not to store any more crypto trading funds than needed on a platform.

Brokers Vs Exchanges

Beginners may not realize the difference between crypto brokers and exchanges, however, there are several distinctions worth calling out.

Crypto exchanges provide a platform that allows buyers and sellers to exchange tokens for other digital currencies and fiat currencies. In contrast, brokers deal and trade with users directly.

Crypto exchanges tend to offer a wider range of tokens and digital assets, however, there is usually less regulatory oversight and governance controls. In addition, crypto brokers normally support more deposit and withdrawal options, offer a variety of trading instruments like CFDs, and offer more tools for beginners like copy trading. More hands-on and reliable customer support is also usually available at the safest crypto brokers.

Ultimately, brokers generally offer the safest place to trade cryptos in 2024. They also offer the best ways to day trade cryptos for short-term investors and traders.

Final Word

Among the most secure ways to trade digital currencies like Bitcoin is to use audited companies with robust safety measures. Investors may also want to keep their cryptos in a hot or cold wallet. Alternatively, traders can forgo token ownership altogether and opt for the safest way of crypto trading – using derivatives like CFDs.

While the dangers of fraud and platform collapse have never been more visible, following the tips in this guide will help investors find the safest ways to trade crypto and store digital assets.

Head to our list of the safest crypto trading brokers to get started.

FAQs

What’s The Safest Way To Buy Cryptocurrency?

The safest ways to trade crypto are to use a reputable broker and opt for derivatives like CFDs. With Contracts For Difference, traders simply bet on the price of an underlying asset like Bitcoin. This means no ownership of cryptos or the pitfalls and dangers associated with storing and holding tokens.

What Is The Safest Way To Store Cryptocurrency?

Investors with security concerns can use a dedicated crypto wallet – these are the safest apps to buy and hold cryptocurrency on.

A “hot” wallet is a software-based solution that requires an internet connection, while a “cold” wallet is external hardware and the safest way to manage crypto funds.

Crypto traders should also avoid leaving more funds than is needed on exchanges or brokers, which have shown a propensity to collapse, either due to mismanagement or extreme market volatility.

What Is The Safest Platform To Trade Cryptocurrency?

The safest cryptocurrency trading platforms may not be the most popular, as evidenced by the FTX collapse. Instead, investors should favor exchanges with regular, independent proof of funds audits and security measures like 2FA.

We have reviewed and ranked the most secure crypto trading platforms.

What Are The Safest Ways To Trade Crypto In The US?

US investors have almost the same access to the crypto markets as traders in Canada, Australia, the UK and indeed the rest of the world. The safest ways to trade crypto are through an audited broker or using derivatives, like CFDs.

Alternatively, longer-term investors can store their crypto holdings in a secure cold wallet, and only leave the capital they need on an exchange or broker’s trading platform. This will minimize losses should the crypto company fail.