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

[5W-KILO]

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.

Well, now that crypto exchanges are capable of paying back loses if hacks happen I think crypto wallet will be useless in no time, many people will eventually buy this idea and start leaving coins on exchanges instead of moving to their wallets.

It's only a matter of time, something will happen that will make this idea a very bad one, Binance is the one giving them the confidence to feel at ease with leaving money on exchanges.

If someone gets hacked and their coins are moved from their crypto wallet they will feel bad and probably always remind it, and if someone leaves their coins on an exchanges and they always cover losses of hacks it will encourage people even more.

[laspol65]

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.

Keeping your Bitcoin under your control is the best thing to do, where it is preferable for each person to keep their own Bitcoin in their own wallet. In the current situation, many people have been harmed by Bitcoin because they have kept it on exchanges, so this situation should definitely be ignored and not used at all. Users who use exchanges to keep their Bitcoin are making the wrong decision, they will eventually lose their capital.
 In this situation, you should definitely use a multisig wallet, because the chances of being hacked using this wallet are very low, but you can choose to use your wallet according to your own opinion.

[Ayers]

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.

IIRC, binance's withdrawal fee ranges from 0.00002-0.00005 BTC, so $1.5-$3 at current prices. You're right about that.

That said, we're not all cut from the same cloth. Everyone's got a different risk appetite, different preferences and a different ability to manage their own coins. I don't encourage anyone to keep coins on CEXs, but I'm not gonna be so selfish as to call people lazy or irresponsible just because they don't see things  the way we do.
Besides, nothing guarantees that people who self custody won't lose their coins.  Have you forgotten what happened with coldcard and ledger? hardware wallets aren't completely risk free.

[Catenaccio]

IIRC, binance's withdrawal fee ranges from 0.00002-0.00005 BTC, so $1.5-$3 at current prices. You're right about that.

Binance as a page to check information about withdrawal fee and trading fee.
https://www.binance.com/en/fee/cryptoFee
https://www.binance.com/en/fee/trading

Bitcoin 0.00002
Bitcoin (Segwit) 0.001
Lightning Network 0.000001

There are BEP20 and ERC20 but I don't list them here because on such chains, there are Wrapped Bitcoin tokens, not actual bitcoins. Because they are tokens, not actual bitcoins, it's safest to avoid using those wrapped bitcoin tokens.

[YellowSwap]

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.

But if they hold there they have a reason too as even hardware wallets can be compromised, just like the tampered Ledger hardware wallets, so for people who do not know how to protect their wallets they choose exchanges especially if an exchange has SAFU and has never failed to compensate their clients every time a hack happens (talking about Binance). Both hardware wallets and exchanges have risks it just depends on how the person weighs things up.

The most important point for me is them getting their coins back if hacks happened, it's not about trading but that's a plus too because as a trader you can already open down some trades and a hack takes place.

I would rather lose $1 or few more as withdrawal fee every 24hrs if I am done trading on a exchange rather than leaving it on any crypto exchanges and sleep well at night.

Just because Binance is capable of reimbursement right now doesn't mean business will always be good,, that amount of money will affect them and trust me they will find a way to recover, either genuinely or illegally.

[SmartCharpa]

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.

Using exchanges or private wallets doesn’t stop you from getting scammed. We see different ways people lose their in this space, using exchanges is now more risky after what happened few days ago.

Exchanges are getting hacked, and people are becoming more vigilant about their money. During the incident a lot of people lost their money, and they would never want to experience such losses again. Many individuals may change their mind and go back to private wallets, where they have full control over their bitcoin. While using a private wallets if u lose your money or get scammed, you will hold yourself responsible because you are the one person who control your wallet.

[passwordnow]

I think the Binance payouts are making this worse, not better. Every time an exchange covers a hack, holders learn that custody risk costs them nothing.
The lesson people take is “I got my money back”, not “I should have held my own keys”. Few of them notice that a refund depends on the exchange’s reserves and on its willingness to pay.

And this makes the users convenient, but we don't see the future that this is a huge risk still that they need to understand. While it's job well done for binance but, they can't always be like this because they don't have an unlimited funds, the safu to pay for every loss that they'll get from these hacks.

People are bad at weighing that kind of trade, so they take the option with no upfront effort.

They don't see the cost of it as of now but when they do, it's definitely going to be costly that they'll learn the valuable lesson that we're trying to tell them even before they realize it.

[Pandu Geddon]

While using a private wallets if u lose your money or get scammed, you will hold yourself responsible because you are the one person who control your wallet.

Even though we have to bear the losses ourselves, I think it is still better. Although not free from the risk of loss, at least when you have quite a lot of assets stored in your wallet, your mindset to be more careful in protecting your wallet is certainly there. 
I am not saying that investors who keep their assets on an exchange do not have this mindset. But perhaps their awareness regarding protecting their assets is not as serious as investors who keep their assets themselves in a wallet. Maybe because they think the exchange will bear it if something goes wrong.

[Oshio-man]

Investors that understand exchange wallets very well will not leave their bitcoin in the wallet for long years before they can sell because the bitcoin is not save for future use despite that some investors are sharing their testimonies on some social media about exchange wallets,  exchange wallets that is not control by you and the team have the power to enter your exchange wallets without your permission, I think a lot of investors have learned from other investors to use electrum wallet to hold their bitcoin because they know is more save for long term than exchange wallets that is not good for long term holding.

[Anayochukwu]

Exchange wallets may be vulnerable and risky but users still use it because it seems easier and simpler to use and also less scary especially for newbies but because of the recent exchange that was hacked we all even newbies should consider using private wallets because it's less risk from being hacked and you are responsible for your assets by yourself without any third parties and it helps you prioritize your assets but if you lose it just know that you have no one to blame but yourself.

[Chinesebaby]

Exchange wallets may be vulnerable and risky but users still use it because it seems easier and simpler to use and also less scary especially for newbies but because of the recent exchange that was hacked we all even newbies should consider using private wallets because it's less risk from being hacked and you are responsible for your assets by yourself without any third parties and it helps you prioritize your assets but if you lose it just know that you have no one to blame but yourself.

In a nutshell, the easy ability of an individual to buy, sell and swap his Bitcoin to either fiat or other cryptocurrencies are the major reason why most people always hold their Bitcoin on an exchange wallet, instead of transferring it immediately to an exchange. And another reason that might prompt an individual to keep his Bitcoin on an exchange wallet is when he has a short term plan for the Bitcoin. Because when you intend to sell the Bitcoin after a few days or week for your basic needs, such investor will rather prefer to just leave the Bitcoin on his exchange wallet, rather than paying a fee to transfer it to his non custodial wallet and then transfer it back. But one thing they need to know is that leaving such money on an exchange wallet is never the best long term financial decision.

[Hamza2424]

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.

Well, bro, the withdrawals then exceeded $4.7 billion, and that's still below 3%. And speaking of Binance's AUM, it's around $157 billion to $171 billion, give or take, but just to be sure, I said $150B. Haha, they are not small. https://www.cbsnews.com/news/binance-customers-withdraw-billions-crypto-hack/

Here, let me give you a link so you don't have to do further deep research. A simple glance would be enough. It doesn't even require deep research.

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?

Bro, how can you doubt me on this? Haha, obviously I understand the fact, and I did not say anything about our perspective! I said about others, that they will always trust Binance and maybe even more so. Mark my words, but I can be wrong, though. Maybe the new generation of investors will come around, haha. But I am sure they won't.

[PERtua]

Exchange wallets may be vulnerable and risky but users still use it because it seems easier and simpler to use and also less scary especially for newbies but because of the recent exchange that was hacked we all even newbies should consider using private wallets because it's less risk from being hacked and you are responsible for your assets by yourself without any third parties and it helps you prioritize your assets but if you lose it just know that you have no one to blame but yourself.

In a nutshell, the easy ability of an individual to buy, sell and swap his Bitcoin to either fiat or other cryptocurrencies are the major reason why most people always hold their Bitcoin on an exchange wallet, instead of transferring it immediately to an exchange. And another reason that might prompt an individual to keep his Bitcoin on an exchange wallet is when he has a short term plan for the Bitcoin. Because when you intend to sell the Bitcoin after a few days or week for your basic needs, such investor will rather prefer to just leave the Bitcoin on his exchange wallet, rather than paying a fee to transfer it to his non custodial wallet and then transfer it back. But one thing they need to know is that leaving such money on an exchange wallet is never the best long term financial decision.

I believe that convenience. And trading practices are more significant than being aware of security. There are lots of investors who purchase Bitcoin with the aim of selling. As soon as they see the price hitting their target.
This is why it's better to keep your Bitcoin on an exchange as it eliminates the additional steps. And transaction fees that would otherwise be needed to move it to your own wallet. But often. Individuals don't realize the potential hazard or liability of being a custodian until they face a problem. While an exchange balance can be viewed as ownership. Users are still relying on a third party to ensure access to their assets. The true question is how many investors do consider them before sacrificing their convenience in favor of self custody.

[DanWalker]

Exchange wallets may be vulnerable and risky but users still use it because it seems easier and simpler to use and also less scary especially for newbies but because of the recent exchange that was hacked we all even newbies should consider using private wallets because it's less risk from being hacked and you are responsible for your assets by yourself without any third parties and it helps you prioritize your assets but if you lose it just know that you have no one to blame but yourself.

Yep, you could say that. Convenience and ease of use are probably the main reasons so many people keep their assets on CEX. But non-custodial aren't 100% safe either, and sometimes things go south through no fault of the user.

You probably remember the Coldcard firmware flaw that led to around $112 million in losses, and Ledger's losses were estimated at over $86m. Do you really think the people who lost money in those incidents only have themselves to blame, when they weren't the ones who caused the problem?

Not every security incident comes down to user error, and using a non custodial doesn't guarantee absolute safety, either.

[Zackz5000]

Self custody is the best way to store your bitcoin and not in an exchange because you have given out your bitcoin to someone else to be in charge and they cannot even keep it as safe as you can because they're hackers target. You can use a mutisig wallet or use a cold storage wallet that the keys are always offline if you have an old laptop which you are no longer using. Of course, the best safety is to store your coins in more than one wallet.

You are correct self custody is just the best, sometimes people forgets that exchanges are on the top targets for hackers/scammers because they hold a huge amounts of different peoples assets or coin in one place. Exchange may still have strong security watch but that doesn't mean that it has end the measures of not getting hacked by fraudsters.

With self custody, people or users can have control over their private keys, which means they will have the direct ownership, control and right over their assets.

[internetional]

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.

I completely agree with this point. It would be helpful if UpTober clarified whom they consider to be investors.

For example, in my view, an investor (in the context of Bitcoin) is not simply someone who owns a certain amount of BTC, but someone who uses their coins to make investments: puts them into the development of a business with the expectation of earning a profit from that business.

And such people have little reason to keep their bitcoins on exchanges.

[GeorgeJohn]

Exchange wallets may be vulnerable and risky but users still use it because it seems easier and simpler to use and also less scary

I have not seen what is easy by using exchange wallet...And their's no difficult thing in using exchange wallet or hardware wallets..The thing is that people in forum do like using exchange wallet because is easier for them to exchange their BTC without paying fees..that's most of the reasons why almost 75% who receive payments in the forum chose exchange wallet instead of hardware wallet...

[snowpega]

Well, bro, the withdrawals then exceeded $4.7 billion, and that's still below 3%. And speaking of Binance's AUM, it's around $157 billion to $171 billion, give or take, but just to be sure, I said $150B. Haha, they are not small. https://www.cbsnews.com/news/binance-customers-withdraw-billions-crypto-hack/

Here, let me give you a link so you don't have to do further deep research. A simple glance would be enough. It doesn't even require deep research.

I just gave a quick look to the link you shared with me, and I was kind of surprised to see what the title of this article says and what the article information says and both of the statements in the same article are contrary, haha. Why?

According to the title, the net withdrawal amount was around $7.4 billion, and according to article the information, the total withdrawal amount was $4.7 billions

Now I have two assumptions here haha, whether the article writer mistakenly wrote $7.4 billion rather than writing $4.7 billion  in the title.
Or it is possible that the net outflow was $7.4 billion, where $4.7 billion might have been withdrawn in the form of crypto assets, and the rest of the $2.7 billion was withdrawn in the form of P2P, which makes it a total of $7.4 billion. What do you think?

[boyptc]

I believe that convenience. And trading practices are more significant than being aware of security. There are lots of investors who purchase Bitcoin with the aim of selling. As soon as they see the price hitting their target.
This is why it's better to keep your Bitcoin on an exchange as it eliminates the additional steps. And transaction fees that would otherwise be needed to move it to your own wallet. But often. Individuals don't realize the potential hazard or liability of being a custodian until they face a problem. While an exchange balance can be viewed as ownership. Users are still relying on a third party to ensure access to their assets. The true question is how many investors do consider them before sacrificing their convenience in favor of self custody.

I also believe that's it.

When the market skyrockets, they're all ready to sell it as soon as possible as it hits their target selling price. The convenience is real but aside from that.

As we speak in general so it's for almost all exchanges that they trust. The fee doesn't matter as they're cheap but the speed is what they're also concerned with because it takes 10 minutes for a block to get confirmed.

This is what I think of it, that belief that binance proved themselves is what making these folks continue to hold their assets in binance.

[greysonz]

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.

In light of recent events, everything has turned upside down. Those users who kept their bitcoins on hardware wallets (and thought everything was fine) were robbed beyond recovery. But those who kept their bitcoins on Binance (contrary to all the rules of safe storage - "not your keys...") suffered no losses after the hack. CZ restored every last satoshi for them. What's so strange about this? So, should they be stored on exchanges? No. These are just a few exceptions to the rule, one after another. They won't be repeated, and the rules of the game haven't changed.