Crypto Exchanges and Apps: Risks, Protections and What to Check First

Crypto exchanges and apps make it easy to buy digital assets in a few taps. Regulators in the US and elsewhere, however, repeatedly warn that crypto assets are highly volatile and that some platforms do not offer the protections people expect from a bank or a traditional broker. Fraudsters also use crypto heavily because payments are fast and hard to reverse.

This guide summarises official warnings and gives a checklist to use before opening an account. We do not review or recommend any exchange, coin or token, and nothing here is investment advice.

What regulators warn about

The SEC’s investor alert Exercise Caution with Crypto Asset Securities highlights that crypto investments can be highly volatile and speculative, and that some platforms may not comply with applicable law. Risks it describes include:

• Platform failure, which can leave customers unable to access assets.
• Restricted withdrawals during periods of stress.
• Hacking and theft.
• Fraud and manipulation.
• Missing information, such as audited financial statements.

The alert advises investing only money you can afford to lose and avoiding investments you do not understand. FINRA and the CFTC also publish investor education on crypto assets.

Protections that may not apply

• Deposit insurance. FDIC insurance protects deposits at insured banks; it does not cover crypto assets. See the FDIC’s deposit insurance page.
• SIPC. SIPC protection applies to customers of SIPC-member broker-dealers for certain securities and cash, up to its limits. It does not protect against market losses, and many crypto assets held on crypto platforms may not be covered. Read what SIPC protects.
• Reversibility. Crypto transfers are generally difficult or impossible to reverse.

Understand what you are buying

Crypto assets are not all alike. Some are designed as payment tokens, some are linked to software platforms, and others, often called stablecoins, aim to keep a steady value against a currency. Each has different risks. Before buying, read the project’s documentation, find out who controls it, check whether the token can be easily sold and ask yourself how you would react if its price fell sharply. If you cannot explain in one or two sentences what gives the asset value, regulators’ advice is to avoid it.

Also decide in advance how you will hold it. Keeping assets on an exchange means relying on that company. Holding them in your own wallet means you alone are responsible for keeping recovery phrases safe: if they are lost or stolen, the assets usually cannot be recovered.

Questions to ask before opening an account

1. Who is the legal entity? Find the company’s full name, where it is based and which regulators supervise it.
2. Is it registered or licensed? Requirements vary by activity and state. Check the firm’s disclosures and, for securities activities, BrokerCheck.
3. How are customer assets held? Ask whether assets are segregated, held by a custodian or lent out.
4. What are all the fees? Trading fees, spreads, deposit and withdrawal fees and network fees.
5. Can you withdraw at any time? Read the terms on withdrawal limits and suspensions.
6. What security does it offer? Two-factor authentication, withdrawal address allow-lists and alerts.
7. What happens in bankruptcy? Read the user agreement’s section on ownership of assets.

How crypto scams work

The SEC has published an alert on ways fraudsters lure victims into crypto scams. Common patterns include:

• Relationship or “pig-butchering” scams, where a new online friend introduces an investment platform.
• Fake platforms showing invented gains, then demanding “taxes” or “fees” before withdrawals.
• Impersonation of well-known companies, celebrities or government agencies.
• Deepfakes: the SEC warns that fraudsters may use AI-generated voices, images and videos of celebrities, officials or even relatives.
• Small early withdrawals that build trust before larger sums are requested.
• Promises of high returns or pressure to act immediately.

If you are asked to pay to withdraw your own money, treat it as a scam. Report fraud at ReportFraud.ftc.gov.

Protecting your account

• Use a unique password and app-based two-factor authentication.
• Never share recovery phrases or one-time codes.
• Type the platform’s address yourself instead of clicking links.
• Start small and test a withdrawal before depositing more.
• Keep records of every transaction for tax purposes.

Frequently asked questions

Sources

• SEC/Investor.gov – Exercise caution with crypto asset securities
• SEC/Investor.gov – Crypto scams
• FINRA – Crypto assets
• CFTC – Learn and protect
• SIPC – What SIPC protects

Related guides

• How to Choose an Online Broker: Fees, Protections and Registration Checks
• Index Funds and ETFs: A Plain-English Guide for Beginners
• Robo-Advisers vs Human Financial Advisers: How They Work and How to Check Them
• High-Yield Savings, CDs and Deposit Insurance: Where to Keep Cash Before You Invest

Opportuly Careers is an independent guide. We are not an exchange, broker or investment adviser and this article is general information, not investment advice. Crypto assets are highly risky and you can lose all the money you invest.