The Risks of Keeping Crypto on an Exchange
When first purchasing cryptocurrency, it is common that many individuals store their coins on the exchange where they bought them. While common, this is definitely not safe or secure.
There are so many risks to keeping your cryptocurrency on an exchange. We delve into all of the risks here, but ultimately, it is up to you whether you take the time to move your cryptocurrency elsewhere or leave it where it is.
The 6 Biggest Risks of Keeping Crypto on an Exchange
1. The Exchange May Go Under
Although there are many decent centralized cryptocurrency exchanges, there are also many that are absolute scams. Just look at the fall of FTX and how many individuals are still waiting for their balances to be returned.
The point is, when you store your cryptocurrency on the exchange where you bought it, you are essentially trusting the exchange to still be there. You are also trusting them to store your Bitcoin (or other cryptocurrency) in their personal treasury. This is a lot of trust to place into a single entity, especially as Bitcoin becomes worth more and more money.
2. The Exchange May Be Hacked
Let’s say you do trust the exchange you are storing your cryptocurrency on, but do you trust their security policies? Unlike offline cold wallets (like Trezor and LedgerS), online wallets can be hacked at any time.
Again, while we do think there are some exchanges that are able to withstand even the most devious hackers, many cannot. There is also the issue that even if the hack isn’t targeted as a whole, your account can be targeted via phishing emails, social engineering scams, and more.
Basically, the only way to truly ensure your cryptocurrency can’t be hacked is by moving it to an offline wallet. Don’t believe us? Just read about the ByBit attack, which happened in February 2025.
3. Regulations Can Change
Even within the above two sections, we mentioned that there are many trusted centralized exchanges. Examples include Coinbase, Binance, and Kraken. All three of these exchanges are registered with the appropriate governing authorities and are unlikely to go under, or be subject to a hack.
That being said, because these exchanges are trustworthy, insured, and appropriately registered, this means any users are subject to the government restrictions in the country where the exchange operates.
For example, say you are an American using Coinbase and storing your Bitcoin on the exchange. If you were to do something illegal, or be suspected of laundering money, Coinbase may respond to authority requests to lock your account. This could lead to you eventually losing everything, even if you haven’t done anything wrong.
The point is, when you trust a platform, you are also trusting the government behind that platform—so proceed with caution and store your cryptocurrency elsewhere.
4. Country Blockages
Speaking of restrictions, when you utilize an exchange to store your cryptocurrency, you have to abide by international laws—not just the ones of where your exchange is based. For example, Russia is supposed to be blocked from interacting with the world on a financial scale due to the war in Ukraine. If you try to send cryptocurrency via your exchange to a wallet registered in Russia, you will find yourself blocked.
It is important to note that we aren’t suggesting you circumvent world economic laws. We are merely stating that cryptocurrency is supposed to be truly borderless, and that is not possible when you continue to store your crypto on the exchange where you purchased it.
We also want to mention that even though cryptocurrency may be legal in your country now, it may not remain this way. If you keep your crypto on a platform that does respond to local government regulations, you may find your cryptocurrency forcibly sold if the laws regarding cryptocurrency change.
5. Employees Might Be Able to Access Your Funds
One reason that many individuals store their cryptocurrency on an exchange is so that they don’t lose it, and so they can have an employee help them if they get locked out of their account. While these are both valid reasons, it’s critical to note that when that employee helps you gain access to your account, they too could gain access.
While most employees for the largest centralized wallets are vetted, this doesn’t mean that all employees are vetted. Insider threats remain a huge risk to cybersecurity both inside and outside of cryptocurrency. Something you won’t have to deal with when utilizing a cold wallet.
6. Lack of Transparency
This risk is toward the bottom of the list because we recognize that there is a lack of transparency in almost every industry in the world—especially fiat banking. Basically, this risk comes down to the fact that when you store your money on an exchange, you can’t ever know for sure what the company is doing with your funds. Like fiat banks, stored cash isn’t all kept in a vault—it’s lent to other bank users and used by the bank for investments.
This isn’t us saying we are against crypto staking or crypto loans—just us cautioning you that you never quite know what is happening with your funds that are stored on an exchange. They could be used for risky investment practices, funding something you don’t believe in, or, in the worst-case scenario, used by the owners to purchase yachts (yes, we are mentioning FTX a second time).
Of course, this doesn’t bother everyone, and may not bother you. But it still brings up the point that when you store your funds on an exchange, you never know quite what is happening with them.
Overall, we recommend not storing your cryptocurrency on an exchange. We hope that these risks have made you realize that it isn’t worth the risk and that a cold wallet is always safer. That being said, the choice at the end of the day is all yours.
