Which cryptocurrency trader are you, long-term or rather short-term? Whatever trading or investment style is closer to you, you must swap cryptocurrencies at some point — or at least fiat to crypto. To streamline your cryptocurrency experience on KvaPay and beyond, we gathered 10 principles for safe and favorable cryptocurrency swapping. Let’s dive in!
Understand the exchange rates
When you go to the application or website you use to check cryptocurrency prices and charts, you usually see a price in U.S. dollars that is different from the price if you were to buy/sell a cryptocurrency. Why so? Spreads, fees, and liquidity issues. In addition to an exchange-specific fee structure, the exchange rates can vary depending on an exchange of your choice or whether you buy/sell crypto.
KvaPay offers low exchange fees and no hidden spreads or commissions. The swap fees vary depending on the cryptocurrency, and they are always specified separately for transparency.
Tip: To choose a DEX for cryptocurrency swapping, use exchange aggregators like 1inch or Matcha. This will help you to find the best rates across decentralized exchanges.
Consider liquidity
Liquidity measures how easily you can buy or sell a particular asset without affecting its price. Liquidity is crucial in the cryptocurrency market because a lack of it can lead to price slippage when the actual cost of exchange differs from expected.
Tip: To minimize price slippage, use exchanges known for their liquidity or DEXs like Uniswap for major tokens. You can also use KvaPay since we always show the transaction price, which is not subject to alteration as you proceed.
Beware of transaction fees
Every exchange charges fees for swapping cryptocurrencies, but one more cost is the blockchain’s commission. For Example, swapping tokens within the Ethereum blockchain often requires paying gas fees. Gas fees are meant to compensate for blockchain’s energy consumption, and the higher the network congestion, the higher the gas fees. Remember to account for these costs when swapping cryptocurrencies.
Tip: If you exchange small amounts, using Layer 2 solutions like Arbitrum or Optimism is beneficial. They can offer lower fees than Ethereum’s mainnet.
Understand your tax liabilities
Nobody likes to pay taxes, especially for crypto. However, since all blockchain records are publicly available, it will be a breeze for your country’s tax service to see your transactions and account balance. Depending on where you live, the tax administrations can be pretty vigilant and advanced in hunting potential evaders. Sometimes, you must pay capital gains tax even when swapping one cryptocurrency for another. This applies in case the value of the crypto has significantly increased over time, and you transferred it to another currency. As an example, Ether to Tether.
Tip: Keep records of your transactions with dates, amounts, and fiat values at each specific moment. Use crypto tax software like CoinTracker to make reporting easier.
Check the reputation of the exchange
It is essential to check the reputation and security of an exchange you use for the first time. Even well-known exchanges sometimes suffer security breaches that can cause you to lose your funds. Always research the exchange's history and reviews and make sure that it has sufficient security features.
Tip: Choose reputable exchanges that have existed for a long time. Enable two-factor authentication for additional security of your account.
Diversify your crypto holdings
Diversification is a must not only for your investment portfolio. When you swap crypto, consider using multiple wallets and multiple currencies. When your funds are stored, some risks get infinitely more severe if you keep all your crypto in one place. For example, if your holdings are distributed across different wallets and currencies, a single token’s price drop will not be as painful. The same goes for malicious attacks. If one of your wallets is compromised, it does not hurt as much as if your entire savings are stolen.
Tip: The crypto market has sectors, just like the traditional financial market. Depending on your risk tolerance, diversify into sectors like DeFi, NFTs, and stablecoins, or use other methods.
Be aware of network congestion
As mentioned before, network congestion can impact the speed and price of your cryptocurrency swaps. Especially on major blockchains like Ethereum, transactions can be delayed during high network activity, and gas fees can skyrocket. Monitor network conditions before you swap.
Tip: Use platforms that show gas fees and select appropriate times for your swaps.
Stay informed about market trends
Market trends, news, and social media hype critically affect cryptocurrency prices. Sometimes, even one tweet can significantly shift the price. Stay informed about the latest cryptocurrency news and watch the global news. There are events unrelated to the cryptocurrency market at first sight but still affecting the prices. Examples of such news are political turmoil, especially in the regions with a high concentration of cryptocurrency miners.
Tip: Follow reputable news media, be active in the crypto community, and use services like Google Alerts to react to crucial updates.
Use limit orders
If trading on a centralized exchange with advanced features, try using limit orders when swapping crypto. A limit order allows you to set a specific price at which you are willing to exchange your crypto. This gives you more control over the transaction.
Tip: Set a limit order slightly below the current market price and have a chance to swap at a better price.
Keep an eye on regulatory changes
Governments and financial regulators are constantly introducing new control measures. Some countries have restrictive policies, while others are more open to innovation. For example, some exchanges can be inaccessible in different countries. Another risk is that some banks are intolerant of cryptocurrency-related transactions. It has occurred that certain fiat transfers were blocked during p2p trading or withdrawal from a crypto exchange.
Tip: Ask a consultant or browse the recent articles and news from government agencies specializing in cryptocurrency regulations.
Cryptocurrency swapping is an essential part of the cryptocurrency market and trading. Remember our tips when swapping, and stay informed about recent cryptocurrency events. Visit our Blog for more articles like this!
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