Storing assets on cryptocurrency exchanges carries serious risks that can lead to loss of funds. Here are the key reasons to avoid this:
1. Risk of exchange hacking
Cryptocurrency exchanges are a tempting target for hackers. Even platforms with strong protection are vulnerable:
- Examples: Mt. Gox (2014, loss of $450 million), Coincheck (2018, $530 million), FTX (hacked after bankruptcy, $400 million).
- Conclusion: If the exchange is hacked, your assets can disappear without the possibility of recovery.
2. Fraud and bankruptcy
Some exchanges turn out to be financial pyramids or hide debts:
- FTX (2022): Users lost access to $8 billion due to hidden cross-collateralization and manipulations.
- QuadrigaCX (2019): CEO "accidentally died", taking with him the passwords to wallets with $190 million.
Even legal exchanges can freeze withdrawals if they suspect illiquidity.
3. "Not your keys, not your crypto"
While assets are on the exchange, you do not own them. The exchange controls the private keys, meaning:
- May block accounts without explanation (for example, due to suspicious transactions).
- Will implement KYC requirements, requiring the disclosure of personal information for withdrawals.
Alternative: Cold wallets (Ledger, Trezor) or non-custodial wallets (Trust Wallet, MetaMask), where only you hold the keys.
4. Regulatory risks
Governments often pressure exchanges:
- Blocking accounts of residents from "unfriendly" countries (for example, Binance in Canada in 2023).
- Confiscation of funds by court order (cases with BitMEX and Bitfinex).
Even if you haven’t broken the law, the exchange can become a hostage to politics.
5. Technical failures and errors
- Glitches during high volatility: In 2021, Robinhood and Binance halted trading of DOGE and BTC during sharp spikes.
- Errors in smart contracts: Hacking of Poly Network (2021, $600 million) due to code vulnerability.
Even temporary unavailability of the platform hinders the ability to lock in profits or stop losses.
6. Lack of insurance
Most exchanges do not compensate for losses:
- Exceptions: Coinbase and Gemini insure only "hot" wallets but do not cover 100% of funds.
- Reality: After the bankruptcy of Celsius (2022), customers waited years for partial refunds through the courts.
How to minimize risks?
1. Store the majority of funds in cold wallets.
2. Use exchanges only for trading, withdrawing crypto immediately after transactions.
3. Enable 2FA and address whitelisting.
4. Check the reputation of the exchange (licenses, audits, years of operation).
Conclusion: Cryptocurrency exchanges are like casinos. You can enter to place a bet, but leaving all your wealth there is dangerous. Your assets are safe only when you control the private keys. 🔑