Why are investors more likely to hold Bitcoin in exchange wallets?

[Felicity_Tide]

We have seen this before that some popular exchanges have been hacked, but we have not stopped using exchange wallets for long-term holding from that place. Maybe there are some things that investors always ignore the various risks.

Perhaps users give more priority to the conveniences, such as when using exchange wallets, there is usually no need to store the Seed Phrase separately, similarly, there is no risk of losing the Seed Phrase,

For typical users who naturally store and hold their assets on Cex for long term, It's always difficult to believe that they're unaware of what's currently happening in the crypto space, especially with the recent hacks. Unlike users who trade/perform different transactions with their assets, I think the decision of those who still choose to store large amounts on Cex has very little to do with convenience.... And I'm still certain that despite these recent hacks, there are many of them who would continue doing the same thing without being bothered. Personally, I feel their choice has more to do with having someone to hold accountable when things go wrong rather than convenience.

And let's not make it sound like self custody is a very difficult task... We're all responsible for several things in our daily/normal lives, so I don't see why keeping our assets safe should be any different.

[B2Z]

It would be foolish for us to risk our entire money thinking about some temporary benefits. All of us who invest have long-term goals and all of us say that we are very careful about our investments but we cannot make the right decisions without going to important places. An investor works hard and keeps depositing Bitcoins but if the wallet where he deposited Bitcoins does not have any security or if there is a possibility of his Bitcoins being hacked from there, then there will be nothing more sad than this. Since such unpleasant incidents have happened more than once before, I think we should have been careful in advance and for those of us who are not careful yet, this is the best time, if we are not careful now, we will regret it in the future.

[Exitoral]

Most people have seen that if they keep their seed phrase, there is a likelihood of it missing. Maybe because they are careless and they know it. So they willingly sacrifice their self security, intrusting their Bitcoin to centralised exchanges. Some it's because of convenience.

Storing their own coins isn't convenient for some people. They are their own security and most people don't like it. They accept the risk that comes with it. I bet they would by now be biting their own fingers.

[macson]

Most people choose exchanges because of the convenience they offer. They don't need to manage their seed phrases anymore and they can buy and sell more easily. But, "convenience is the enemy of security", no matter how much an exchange claims to be secure, it still isn't the best place to store your assets --- self-custody is.

However, self-custody isn't for everyone. So no matter how many times it is said that self-custody is the best way to secure your assets, most people will still use exchanges to store their assets.

[2stout]

This is most likely because they are actively trading and not just HoDL'ing.  And, also to convert and cash out of Bitcoin into fiat or some other shitcoin.  If just HoDL'ing, then keeping in one's own wallet or offline cold storage would be the best.

[Mrbluntzy]

Even though exchange wallets have some advantages, I think we should think long-term and prioritize the security of our investments.

Exchange wallets has no advantage, the exchange it self is the only easiest option for some people in some country to buy Bitcoin 24/7 as they like but that doesn't make it a safe place to store your coin. Self custody wallet is best, it is relatable for traders to leave some money in the exchange but a holder who decides to hold their coins in the exchange is either a newbie who doesn't have knowledge of what they are doing and the earlier they realize it, the better for them.
Last year, there were about 10 centralized exchange that were reportedly hacked, as of this year I can count 4 CEx hack, while in 2024 it was also about 10 centralized exchange, in 2023 it was about 8 of them too. So, anyone that is not newbie would know that exchange hacks or security breach did not start today, therefore the decision to store coin in an exchange is lack of knowledge by that individual.

[I_Anime]

We have seen this before that some popular exchanges have been hacked, but we have not stopped using exchange wallets for long-term holding from that place. Maybe there are some things that investors always ignore the various risks.

Perhaps users give more priority to the conveniences, such as when using exchange wallets, there is usually no need to store the Seed Phrase separately, similarly, there is no risk of losing the Seed Phrase, so maybe they consider exchange wallets safe to store their Bitcoin. Similarly, through exchange wallets, buying and selling can be done very easily and there is no need to transfer Bitcoin using a specific address. Maybe considering this overall issue, investors use such exchange wallets to maintain their investments for the long term despite the risks of using exchange wallets.

I think we should be extremely careful from now on, because with the amount of money the world's best exchange like Binance lost in a short-term attack, there is no guarantee that our hard-earned Bitcoins will not end up in the hands of hackers in an instant. Even though exchange wallets have some advantages, I think we should think long-term and prioritize the security of our investments.

First I will say they like the convenience that comes with it , having in mind that they don’t have to go through the risk of losing that seed phrase . Personally , someone that’s ready to invest for longterm exchanges is never a bright idea . Now I will be talking on the aspect of human psychology, if you are holding in exchanges you are not only expose to risk of money been stolen by hackers. You’re also positioning yourself in a way you will be tempted to tamper with your investment.

That’s why exchanges are usually used by those who are in for short-term profits only (traders). Because with exchanges they can easily speculate and flow with the market wave , even with or without Leverage. Avoiding using the exchanges to hold for a whole cycle or long term.

[taufik123]

There are many reasons why they store Bitcoin on the Exchange and the reason I often hear is that they don't want to move their funds to an Exchange
or a personal wallet too often because they also trade on the exchange.

Some other reasons may be that they feel safe and comfortable saving on the Exchange because they have never experienced losing money on the Exchange due to hacking and such.
But now with the incident of hacking on Binance, people are also starting to be vigilant and store their assets in private wallets.

[AYOBA]

I don't know whether investors actually use exchange wallets but it's true that using exchange wallets can also be risky especially when you have a large amount of funds. Normally wallets are much safer than exchanges but there could be a problem with exchange keyless wallet. For example you deposit a large amount of funds into it then the exchange removes access to your wallet and asks you to import it again. When you try to import it you find that you're wallet is no longer there. What will happen then? All your funds will be gone.

I can say that most of the investors prefer to use exchange wallets than the wallets, but it look like the numbers of people that use exchange and wallets are equal. It’s true that the both is involved of risky but one has high risks, and with that people doesn’t care if not be now that this issue of hackers is has been come so popular. Like me I also prefer using exchanges than wallet, because since i started using the exchange I have never experience any losing from the exchanges and that that’s why i stick to the exchanges up to now. I know that this incident that happen recently has teach most us a lesson, not everyone will like to store their assets in the exchanges anymore.

[Zoomic]

When we say people shouldn't keep their Bitcoin in exchanges, they think it's all about exchange security alone. Beyond hacking, keeping Bitcoin in an exchange also comes with other kind of security risk. Exchange users can still face withdrawal restrictions, account freezes or other problems mustn't be associated with losing their passwords.

Exchange funds aren't fully controlled by you, regardless of how secure it is so the best strategy is to use them for trading and move your coins to private wallet when you're done. Bitcoin was created to give you total control over your money, why would you want to leave it in another person's control?

[Jasmyne]

Perhaps users give more priority to the conveniences, such as when using exchange wallets, there is usually no need to store the Seed Phrase separately, similarly, there is no risk of losing the Seed Phrase, so maybe they consider exchange wallets safe to store their Bitcoin. Simi

Having seed phrase back up in two or three locations is not something hard to do. I do not see exchanges as convenient means of keeping your bitcoin and other cryptocurrencies. But maybe this is true for some people. Even transactions on noncustodial wallets are faster and cheapera and you have full control.

The disadvantages of keeping bitcoin in an exchange is more when you can have everything under your care and you protect your seed phrase like your life depends on it since it is where you plan your retirement savings just as the case maybe. You do not have the total control of what is not in your custody that is the reason why it is better kept under your care ( self custody) you have your left custodial wallet you can protect it where ever you are and nobody will have access to your bitcoin. Binance will not allow different transactions immediately after the hack that alone tells you the importance of keeping it under your guidance you have full control of what happens to it and how careful you have to be.

[Churchillvv]

I think there is no limit to learning lessons everyday people get to learn new lessons, unlearn old lessons and relearn, then learn a new lesson. That’s how life in general has been working but in the crypto world we don’t have to learn so many time but at least once and maybe from others stories should be enough and you don’t need to learn it yourself. This hack is a serious case even though the exchange claims they have things put to gather that’s like a whole lot of profit years wiped in few hours and that can cause every single individual a loss in the market.

[Tamaperdana]

Snip

Basically, if we buy Bitcoin with the intention of investing long-term, it's clearly better to store it in a personal or non-custodial wallet. Why store it on an exchange? Bitcoin, after all, is unlikely to be used. That's because the goal is long-term, unless the Bitcoin isn't intended for long-term investment. Yes, that's probably more reasonable. If we buy Bitcoin for trading, then it will likely be more frequently on the exchange. But it's clearly very risky, so it's best not to take this lightly. Basically, if the Bitcoin we've accumulated disappears, it's certainly not a good idea. Therefore, it's better to play it safe by storing it in a personal wallet. Furthermore, if a major investor still holds their Bitcoin on an exchange, it's likely they're trading it, or rather, they're traders. Correct me if I'm wrong.

[Stalker22]

We have seen this before that some popular exchanges have been hacked, but we have not stopped using exchange wallets for long-term holding from that place. Maybe there are some things that investors always ignore the various risks.
~

Do you have any concrete data to support such a conclusion?  Because honestly, every single person I know in crypto who has been around for more than two cycles moved their stash off CEXs years ago.

You forget that there are thousands of people who use exchanges every day for exactly what they are intended for—trading. If you are actively day trading or rebalancing a portfolio every few hours, moving assets back and forth to cold storage constantly is a complete nightmare with network fees and confirmation delays... its just not practical.

[jossiel]

I think we should think long-term and prioritize the security of our investments.

Owning hw is still okay at this moment. Those hws that didn't have too much leak and hack happened to them. The worry with these hws are the tampering of device.

I think, someone who's going to purchase one needs to open the whole hw and show it to the community if they're no good in checking cips.

But this is where these hackers, scammers and thieves will become more clever too. They might invent something new on how the trickery goes for their part.

[2Pizza410000BTC]

Long term investors always think advanced and never think risky. As far as I know long term investors use hardware wallets, software wallets because they don't want to take risks by using their own wallets. However, there are some investors who choose exchange wallets because they invest and trade and sell some bitcoins from there if necessary, which is why they choose exchange wallets to get the benefits of both sides.

Moreover, Binance Exchange was a very popular and safe place but I never imagined that they would be so easily hacked. I myself hold most of my investments on Binance Exchange and it works great, that's why I sometimes join trading and sometimes I have to sell Bitcoin for family needs, but I was very scared of someone hacking that day, but when I opened Binance Exchange, I saw that the users had no problem with their funds.

[angrybirdy]

There are many reasons why investors still trust storing assets on the exchange with many attractive offers.
Binance, Bybit, Bitget have been hacked in large numbers, but the platform still managed to rise not to charge losses to its customers, which is probably what other investors still believe, although I myself have never advised it.
Do not think of others, better ourselves how to do his, safe anticipation so as not to become a victim, hardware or software wallet.

To start with, I would say that having a good reputation or going through several successful hackings before does not mean that I have to keep all my money at the same exchange....While I can clearly understand the reasons why most people are keen on using such services out of convenience, I need to remind us that first of all our safety must be the priority. Namely, in my case, it is much better to be safe than to put my safety in the hands of the exchange, which may or may not be able to pay me back for my losses...For a basic level of security to be achieved, all one has to do is to use a wallet and enable all necessary security measures.

[Botnake]

They know the risk already, and its like they already accepted the risk, and eventually regret later when the exchange gets hacked.

What I see most of the reason is that they fear on taking full responsibility of their bitcoin. They have fear on having full custody of their coins, and afraid that if they commit a single mistake, they will instantly lose everything they have. When there's no even difference trusting even a popular exchange, because when the system gets hacked, they will lose everything they have saved there. But perhaps some amount will be compensated.

[laspol65]

I think we should be extremely careful from now on, because with the amount of money the world's best exchange like Binance lost in a short-term attack, there is no guarantee that our hard-earned Bitcoins will not end up in the hands of hackers in an instant. Even though exchange wallets have some advantages, I think we should think long-term and prioritize the security of our investments.

But this is the most supported where your future should be given the most importance, many people use exchange wallets, this is not right at all because this exchange wallet has the power to control a third party. Where you have KYC, who you are can be easily identified, so never deposit Bitcoin in those places.
However, exchange wallets can be used to purchase Bitcoin and as soon as you purchase it, you can transfer it to the wallet that you use to hold Bitcoin for future purposes. If you have to invest in Bitcoin, you can use multi-sig wallets, but the seed phrase of the wallet must be kept very safe.

[Japinat]

I think we cannot assume that they hold their Bitcoin on exchanges, I believe that most of the Bitcoin on exchanges is from people who are also actively trading as well. Some may HODL there for the long term but only a small percentage I guess.

Well most of the long-term investors are into trading too, so it brings more convenience for them if they leave some bitcoin on their trusted exchange. While some just completely ignore the high risk in saving their coins in an exchange, as even hardware wallets are risky too, but there is lower risk saving in hardware wallets compared to a centralized exchange.

While most newbies are still learning though. And they won't learned fast until they will have to experience it on their own.