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

[Nathrixxx]

I know the truth is that some investors are holding their assets on a centralized exchange for reasons known to them, but it is also important that we make it clear and bold enough for them to know the risk ahead when using a centralized platform. The risk it poses does not warrant taking such a decision in this manner, but I don't know why many will always choose to go this hard way when they know the possible risk in it.

[OcTradism]

I know the truth is that some investors are holding their assets on a centralized exchange for reasons known to them, but it is also important that we make it clear and bold enough for them to know the risk ahead when using a centralized platform. The risk it poses does not warrant taking such a decision in this manner, but I don't know why many will always choose to go this hard way when they know the possible risk in it.

The most common reason is they consider themselves as investors, and their action as investing but in their practice and plans, they want to trade their bitcoins. It's main reason they have to leave bitcoins in accounts on centralized exchanges, for waiting opportunities of trading bitcoins for having more bitcoins or for having profit.

Painfully, the common result from this practice is loss of their bitcoins and have loss from trading, not profit while if they simply hold their bitcoins in non custodial wallets, off exchanges, and don't trade, they would have gotten very good profit.

This motivation of trading bitcoin for profit or getting more bitcoins is most common reason, and it's even bigger than lack of knowledge about importance of Bitcoin non custodial wallets, "it's your key, it's your bitcoin", and extremely danger of custodial wallets and exchanges.

How to manage your bitcoin like a whale.

[free-bit.co.in]

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?

From what I understand, users withdrew a total of $7.4b, but another $2.7b was deposited into exchange over the same period. That puts the net outflow at $4.7 billion ($7.4 - $2.7)

In other word, the headline refers to gross withdrawal, while $4.7 billion figure in the article is the net outflow after deposit are taken into account. There is no contradiction between the two figures. You are just mixing up gross withdrawals with net outflows.

[Betwrong]

~ 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.

It depends on the amount. If you keep on an exchange what you can afford to lose, there's nothing wrong with keeping your funds there. If trading is your thing, you have to have some money in your exchange balance. As for me, I stopped trading years ago after realising that it's not my thing, so I don't hold any Bitcoin in exchange wallets. Trading is a stressful way of making money, and often unprofitable too.

[coupable]

Trusting all your funds and asset with a 3rd party is generally not safe, but individuals seem to ignore that fact, and that shows some levels of carelessness to me. Yes it could be used for trading but when it comes to savings money or long term investment it's not the best choice.

Some of them find it sometimes safer to use exchangers than to take responsibility for saving their assets. Note that not everyone can use non-custodial wallets, where they have to have their private keys and manage them themselves. They don't have the patience to learn the basics of how to use crypto apps properly and instead just want to pick the right third party to hold and manage their private keys for them. And this is how exchangers make fortunes in return.

[Comeacross]

Also worth noting: Binance has the money to promise full refunds. A smaller exchange hit by the same attack usually doesn't, and that's where holders lose everything.

Is this supposed to encourage people to store their coin in a centralized exchanges? Binance has the money to refund does not mean they'll refund everyone when shitty things happened. By now we should have learnt the lesson already with everything that happened with FTX. Did they have the money to refund everyone? Yes, that's what they claimed. Did they refund everyone? No. So don't be deceive when they bragged about their reserves just to convince you because you'll be surprised when the surprise happens. Either big or small exchange, it's all the same, they controlled your coin and reserve the right to either give it to you or not.

[Sobz]

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.

A lot of people dont even know much about wallet, they are so familiar with exchange because of it popularity and they dont understand it security advantage wallets, every wallets is seeing as a good one. I think a good numbers of good hodlers are not found in the exchange, because of how some investors invest heavily in bitcoin it gives them the interest to know more of how to protect their asset. Good hodlers who are heavily investing in bitcoin do it with the right wallet.

[Itz-prisigold]

Also worth noting: Binance has the money to promise full refunds. A smaller exchange hit by the same attack usually doesn't, and that's where holders lose everything. A simple split works for most people: keep on the exchange only what you're actively trading, and the rest in a wallet you control.

I don’t think having enough money to refund users when something goes wrong is actually enough. The question you should be asking yourself should be, is this exchange actually ready and willing to take the responsibility?  Investors should not feel comfortable and secure leaving a huge amount of their Bitcoins on an exchange just because they believe the exchange has enough reserves to cover losses.

Because at the end you are still entrusting other people with your coins, and you don't have any control over what they do with them.  So in whatever you do always remember this, and don’t just feel relaxed while using an exchange just because you know they have a good reputation and their financial strength.

[Sunshine1525]

I think you named the real reason: people aren't choosing the exchange, they're avoiding the seed phrase. For many, losing the seed feels scarier than an exchange hack, because a hack is someone else's fault.

But a safe backup is less work than it sounds. Write the seed on paper or metal, keep two copies in two different places, never store it as a photo or in the cloud, and do one test: restore the wallet from the backup with a small amount before you move everything. If the restore works, you've already removed most of the risk.

Also worth noting: Binance has the money to promise full refunds. A smaller exchange hit by the same attack usually doesn't, and that's where holders lose everything. A simple split works for most people: keep on the exchange only what you're actively trading, and the rest in a wallet you control.

I wonder how people are so scared of their responsibility and prefer to fault other when their money is lost, it's the duty of every long term holder to protect their wallet themselves instead of giving it to a third party. There's just careless cause if they don’t know how to make self-custody a priority they can learn it, it's not something too difficult to comprehend.

What they don't understand is that as a long term holder, self custody is necessary, infact there no point learning about wallet security if the person would still fall back to using exchanges for long term storage of Bitcoin. They talk freedom with Bitcoin but what's freedom without being responsible for their own wallet's security.

[sunsilk]

A lot of people dont even know much about wallet, they are so familiar with exchange because of it popularity and they dont understand it security advantage wallets, every wallets is seeing as a good one. I think a good numbers of good hodlers are not found in the exchange, because of how some investors invest heavily in bitcoin it gives them the interest to know more of how to protect their asset. Good hodlers who are heavily investing in bitcoin do it with the right wallet.

It's because many of the new investors in the market are likely just been introduced to the usage of exchange and not with an actual wallet.

Therefore, they are trusting the exchange wallet as if they're all safe and sound there even it's not.

With what they have seen how they have taken the situation of getting hacked, they're also giving them more reason to trust them continuously.

But let's all hope for the best that sooner or later, they'll also start to become more curious about having self custody for their own coins.

[Synchronice]

There are many potential benefits that investors can get if they hold their Bitcoins on exchanges. They can get annual profit on their Bitcoins that they hold on an exchange. They can also get higher VIP level that will provide them with some benefits like higher cashbacks on crypto cards and so on.

Another benefit that they get is that they can immediately buy and sell Bitcoin and when there is a high price volatility, keeping coins on exchange gives them an instant ability to buy and sell. Some might also be playing with future games and keeps their position open for days or weeks.

Sadly, not many people think about the danger. They probably think that they are safer with the exchange than they would be on their own.

[Slow death]

Most people who keep coins on exchanges do so for trading purposes; it is simply more convenient to have funds readily available on the exchange to buy cryptocurrencies when prices drop or surge. In my own case, for example, I actively trade using 4-hour charts. It might take days for a buy signal to appear whether the price rises or falls and when that signal finally emerges, I need to act quickly. It wouldn't make sense to keep my capital in a private wallet and have to transfer it to an exchange every time I want to make a purchase. That is why I keep my trading capital on the exchange, though I always withdraw my profits.

It is also well understood that larger trading capital generally leads to larger profits though, naturally, it also entails greater risk. Consequently, many people keep significant amounts of capital on exchanges to trade with larger sums and maximize their potential gains. Those who prefer a "buy and hold" strategy, however, do not need to keep their funds on an exchange; they can store them in a private wallet for the long term. Even so, there have been instances where people have had their coins stolen. For example, last month there was this piece of news:

Crypto thieves attack man in home and threaten to kill pregnant wife's baby in 'horrific' robbery

source: https://www.bbc.com/news/articles/c6eq84eygz0qo

The guy had his cryptocurrencies stolen at home and was tortured. This goes to show that even when held in a wallet, coins might not be 100% secure. a recent case of cryptocurrency theft from a wallet, and another example

The Coldcard wallet theft: is self-custody really worth it?

source: https://bitso.com/blog/coldcard-wallet-theft/

At the end of the day, the best thing people can do is to always keep their cryptocurrencies in different places and in varying amounts. For example, you could hold long-term assets in one wallet making sure to keep the private keys secure while keeping another portion in a separate wallet. You might also leave an amount you can afford to lose on an exchange for trading purposes, and always withdraw any profits into a dedicated wallet for safekeeping.