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

[NewRevelation]

I think it's a personal decision, and its not too good. The things you listed could be reasons why some investors may want to hold there money on exchanges, but we know, assets kept in exchanges aren't completely yours, you won it partially, while the exchange has a bigger part of it, and if anything happens, you should know your state, a complete loss.

Self custody is the best, except you are a trader who is not always keeping much on the exchanges and is always withdrawing at anytime, but  if you are an investor, and you want to HODL, then self custody is what you actually need, because these exchanges may not protect your assets as you can.

[Royal Cap]

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.

As far as i have seen most new people make use of exchange wallets due to their higher level of convenience, although convenience does not necessarily mean security. Storing the wallet yourself is vulnerable to loss of the seed phrase, whereas storing it on an exchange means putting yourself at the mercy of another company regarding the safety of your funds, In other words, the choice between the two options is up to personal preferences and skills of the user. For example I would find trading through an exchange justifiable, but long term storage of Bitcoin inappropriate.

[As-Soon-As]

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.

As far as i have seen most new people make use of exchange wallets due to their higher level of convenience, although convenience does not necessarily mean security. Storing the wallet yourself is vulnerable to loss of the seed phrase, whereas storing it on an exchange means putting yourself at the mercy of another company regarding the safety of your funds, In other words, the choice between the two options is up to personal preferences and skills of the user. For example I would find trading through an exchange justifiable, but long term storage of Bitcoin inappropriate.

Here you can understand the difference, the exchange only has the power to control your Bitcoin so it can be acquired by a third party. If you are holding Bitcoin for a long time, it is better to choose a secure wallet, you can choose between software wallet and hardware wallet. Exchanges carry benefits but behind the benefits there is a serious risk, which if it has the power to consume everything about you. I saw a few days ago last year KuCoin seized many wallets and blocked them.
So using an exchange wallet is never safe, you can safely use between hardware wallet and software wallet whose seed phrase you will have yourself.

[alexroor_27]

I think a lot of people never really plan to keep their Bitcoin on an exchange for years. They just buy some - leave it - then buy more. And at some point they've got quite a bit sitting there.

Nothing bad happened so far so why bother? Thats how most people end up holding BTC on exchanges. They just get used to it and stop thinking about anything else.

[FinneysTrueVision]

I’m sure lots of users on this forum were nervous after the news of Binance getting hacked. So many people don’t care about self custody and basically use their centralized exchange accounts as their wallet. Using an exchange might give them peace of mind by having somebody else manage all the risks of key management. It’s true that you might be less likely to lose funds because of malware or phishing scams, but exchanges are also massive targets.

This time Binance will be capable of covering the losses. One close call won’t be enough to convince people to stop putting so much trust in custodians. Unfortunately, the Coldcard and Ledger incidents only made more people perceive self custody as inherently dangerous and made them willing to accept the tradeoffs of using CEXs.

[Catenaccio]

I’m sure lots of users on this forum were nervous after the news of Binance getting hacked.

This fearful effect will last very short time as it has been repeatedly like this in history of Bitcoin and cryptocurrency market. A big exchange hack can cause a new panic wave but it ends quickly and people after making withdrawals will return to centralized exchanges and use such services as well as store their funds there.

So many people don’t care about self custody and basically use their centralized exchange accounts as their wallet. Using an exchange might give them peace of mind by having somebody else manage all the risks of key management.

It's not only reason like centralized exchanges will do security for users, and users feel more safely there but there is another reason which is even bigger than that. People like trading and they need to leave fund on centralized exchanges for trading actively and basically most people in the market are traders so they won't change their practice in the future.

[Tmoonz]

The simple reason why they do that is because they can directly sell their asset without waiting for the deposit confirmation and of course, they don't have confusing about the fee. Many times investors or traders think twice about the fee which they think that is too high. By hodl Bitcoin in exchange wallets, that can cover the fee but that is not a suggestion to keep Bitcoin in exchanges.

We don't know exchanges can stay out from the hackers radar or when the exchanges becoming the target. We should keep Bitcoin in our wallets because that is our responsibility. Remember, not your key, not your coin.

The confusion about the transaction fee is one of the reasons why investors still hold their Bitcoin in an exchange wallet, this is quite understandable to a certain point though it can't be compared to the risk. For most investors, the plan is to hold a certain amount of Bitcoin in an exchange wallet first before considering moving it to a personal wallet because of the cost of transactions fees it could have attracted moving smaller amount of Bitcoin over time in the long term in to a personal wallet. Considering the security and risk implications of holding Bitcoin in an exchange wallet, there is no need being confused about the fee as it worth it if actually the plan is for the long term holding. Not your key, not your coin, should always be remembered and as a watch word.

[Just Say]

As far as i have seen most new people make use of exchange wallets due to their higher level of convenience, although convenience does not necessarily mean security. Storing the wallet yourself is vulnerable to loss of the seed phrase, whereas storing it on an exchange means putting yourself at the mercy of another company regarding the safety of your funds, In other words, the choice between the two options is up to personal preferences and skills of the user. For example I would find trading through an exchange justifiable, but long term storage of Bitcoin inappropriate.

I also think it makes sense to trade on exchanges or do P2P but storing bitcoins on these platforms for long term is totally inappropriate. You should pay attention that new users who are using exchange wallets for convenience should understand that these platforms are suitable for short-term trading but building large portfolios there is controlled by third parties.

There are some advantages of using exchange but it can be assumed there is a possibility of hacking so everyone should use software or hardware wallets for holding bitcoins much more secure than CEX but we should not forget that software wallets are connected to the internet as a result there are malware,or phishing attacks so everyone should use air gapped wallets for holding bitcoins.

[Hamza2424]

Haha, bro, are you sure? From the recent news, I came across many users leaving Binance for their own safety.
And according to this article here...>> Users pulled nearly $3.8 billion off Binance in roughly 10 hours. So isn't this enough for us to make sure people are also losing their trust in even Binance Exchange, even though we know it's the world's biggest crypto exchange? The fact is that, with the passage of time, people are getting wise enough; they are starting to realise the nuance of this matter: how risky it can be to hold major funds on CEX platforms. But some people are still holding their funds on CEX platforms even after these incidents. What do you want to say about this?

The another fact major people still stick to using these CEX platforms is also due to P2P feature. I don't know if there is any DEX P2P platform available in the market which is also trustworthy.

I have read this news as well, bro. The $3.8 billion that people withdrew from Binance is not even 3% of the total funds they still manage for users. You can say 97% of users chose not to withdraw their funds. Binance manages more than $150 billion, so you can see the comparison here. CZ is thankful to all who didn't withdraw and trusted Binance.

That's why it's marketing in itself. There can't be any bigger marketing than this.

Mark my words. You think they will distrust Binance after a year? Considering the amount of BTC, not dollars, because that can increase in one year, keep a record of how much BTC is stored on Binance. After a year, there will be more BTC and more users too, because now they trust it even more.

[snowpega]

...

I have read this news as well, bro. The $3.8 billion that people withdrew from Binance is not even 3% of the total funds they still manage for users. You can say 97% of users chose not to withdraw their funds. Binance manages more than $150 billion, so you can see the comparison here. CZ is thankful to all who didn't withdraw and trusted Binance.

Hmm, I haven't confirmed it yet how much Binance is still holding that are users funds. But thanks for mentioning it to me. I will check it later when I get some time to do some research and check it all in depth, hehe. And if this is correct, what you are saying there is still managing big numbers of users funds.

That's why it's marketing in itself. There can't be any bigger marketing than this.

Mark my words. You think they will distrust Binance after a year? Considering the amount of BTC, not dollars, because that can increase in one year, keep a record of how much BTC is stored on Binance. After a year, there will be more BTC and more users too, because now they trust it even more.

But mate, no matter how trustworthy an exchange can be and how many users they are gaining over time. Our main perspective should be to make sure to keep ourselves on the safe side or place by not holding long-term funds on any centralized exchange, even if it is Binance. And I think you will also agree with this point, understanding the fact: "Not your key, not your coins". What do you think?

[Fivestar4everMVP]

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.

No matter how much or long we preach the risks and disadvantages of keeping crypto funds/investments on an exchange platform, the fact remains that there will always be people/those who would never listen, some - for maybe reasons that are genuine to them, and others - simply out of pure negligence, laziness and what have you.

But the beauty of this all is that everybody reaps the fruit of his or her actions, you leave your funds on an exchange and the exchange gets hacked, and in a manner the management cant be able to refund users that were affected by the hack, it is your loss not mine.
Meanwhile if I choose to be the one on the other side of the table, then it is my loss and not anyone else's, isn't this very simple?  

[Stable090]

As far as i have seen most new people make use of exchange wallets due to their higher level of convenience, although convenience does not necessarily mean security.

Connivence is the reason why most people decide to leave their coin on exchange, they believe it’s can be easily accessed when it’s on exchange, but they don’t know that their money is at risk when their coin is in exchange, anything can happen to the exchange at any moment, and there is nothing that will be done about it, so it’s just better you take your security serious, and forget about convince. Exchange is convenient, but if anything happens to the exchange, then your money is gone also.

Storing the wallet yourself is vulnerable to loss of the seed phrase,

That’s why you should learn about seed phrase security before you start your bitcoin investment journey, if your seed phrase is properly protected, then nothing is going to happen to it, and you will be confident that you are in control of your funds.

[GbitG]

I don't know why..... 

Let me tell you something more..... Today people are just too lazy and even they didn't bother himself to keep his assets safe and to be honest this is one of the dumbest thing I have ever seen.... Like if you want to earn some profit for holding Bitcoin and still you are not marking any circle around his assets I mean to keep it in self custody...... Then you are a F**king bastards I have ever seen.....

Keeping his fund on Exchange is just like you handed your fund to them wether they want to steal it or give back to you.... I know they will never give it back to you if they have got any opportunity for rugpull. So always keep your funds in Self custody rather than centralized Exchange.

[uneng]

It shouldn't be hard to store your seed phrase when using a hardware wallet. It's actually quite easy, since hardware wallets come with a little paper where you can write each word in order. You just have to store it within your wallet inside a safe box, for an example.

For me it's not an excuse to avoid using hardware wallets for that reason. It's still the best alternative, as long as the device is legit and doesn't come adulterated from the seller.

[Queentoshi]

I don't know why..... 

Let me tell you something more..... Today people are just too lazy

Laziness is one explanation, because there is a laziness to looking for information as an informed person will know that there have been many cases of exchanges being hacked and how unsafe it could be. and there is also an assumption that people can have that an exchange is too big or secure to be hacked, or since the exchange has been hacked before cannot be hacked again, so they become careless. Exchanges can be hacked again if hackers are able to detect another loophole to exploit.
Investors need more consciousness on security.

[TastyChillySauce00]

I’m sure lots of users on this forum were nervous after the news of Binance getting hacked. So many people don’t care about self custody and basically use their centralized exchange accounts as their wallet. Using an exchange might give them peace of mind by having somebody else manage all the risks of key management. It’s true that you might be less likely to lose funds because of malware or phishing scams, but exchanges are also massive targets.

This time Binance will be capable of covering the losses. One close call won’t be enough to convince people to stop putting so much trust in custodians. Unfortunately, the Coldcard and Ledger incidents only made more people perceive self custody as inherently dangerous and made them willing to accept the tradeoffs of using CEXs.

Honestly I'm sure people are so confused right now and it's almost like a cycle, the coldcard and ledger incident has caused people to be anxious and migrate their capital over to custodian. Not long after, the custodian itself got hacked and people are reconsidering their decision to go back to hardware wallet again.

So, we just go back and forth simply to make sure we don't get ourselves hacked because both method have their own share of problems. Wouldn't be surprised if some people simply decided that there's nothing they can do and simply diversify to both self custody and in custody like an exchange. We are in a custody dilemma crisis.

[Bluedrem]

Maybe it's because of the reason you mentioned. But I think that people who are investing in Bitcoin for the long term prefer to store their Bitcoin in self-custody rather than depositing their Bitcoin in an exchange quality. That is, a decentralized wallet that the person himself controls. In that case, he only has to store his seed phase.
And those who store sales in exchange wallets are mainly traders or P2P investors. For example, I store some Bitcoin in an exchange wallet for my daily use, yes, it may be to trade in other tokens or to convert Bitcoin to fiat. But it seems unreasonable to me to prioritize the issue of losing seed phase.

[Somegory]

I think a lot of people never really plan to keep their Bitcoin on an exchange for years. They just buy some - leave it - then buy more. And at some point they've got quite a bit sitting there.

Nothing bad happened so far so why bother? Thats how most people end up holding BTC on exchanges. They just get used to it and stop thinking about anything else.

You are seeing something entirely different, it doesn't cost a lot to move small amount of Bitcoin from an exchange to a personal bitcoin wallet, why leave behind your coins when under $1 can be used to move it out?

When you have successfully bought some Bitcoin the next plan is to move it out, there is no such thing as buying some and leaving it because you plan to buy more later, because the more time you spent leaving the coins in the exchange the probability it will get lost.

Lazy people who can't take responsibility are the ones choosing centralised exchanges over self custody.

[Chikito]

Maybe the people feel more comfortable storing their assets on an exchange now, because there have been many cases of losing assets from non-custodial wallets. The exchange also offers if it is hacked they will try to restore, or your assets will not be affected. In this case, if we store asset on exchange, the exchange to be in charge. It is different when we store our assets ourselves where all the responsibility lies with us, this is a idea to store asset on exchange especially for people who are careless with security wallet.

[SquirrelJulietGarden]

Maybe the people feel more comfortable storing their assets on an exchange now, because there have been many cases of losing assets from non-custodial wallets. The exchange also offers if it is hacked they will try to restore, or your assets will not be affected. In this case, if we store asset on exchange, the exchange to be in charge. It is different when we store our assets ourselves where all the responsibility lies with us, this is a idea to store asset on exchange especially for people who are careless with security wallet.

They feel comfortably storing funds on centralized exchanges where they can trade Bitcoin to stablecoins or altcoins, can use leverage to gamble with trading. Most of time they don't feel any risk with this practice at all, and they only start to feel fearful when an exchange is hacked especially it's a big hack on a tier 1 exchange like what happened recently with Bitget and Binance.

They can withdraw funds in panic to non custodial wallets or to accounts on other exchanges, but after all most of them will move their funds back to exchanges and repeat risky practice again.

Most people store funds on exchanges are not investors but are traders and they want to find opportunities from trading.
Reminder: do not keep your money in online accounts.