Two Downsides to Keeping Your Bitcoin on an Exchange Like Coinbase

I was asked today, "What is the downside to keeping my BTC on Coinbase?"

Here is my answer:

1) The biggest is possible loss. Unfortunately, there is a history of companies being irresponsible with the custody of other people's coins. BlockFi, for example, became indirectly entangled with other companies's bad bets so that BlockFi went bankrupt and the coins that were in its supposedly safe "bitcoin savings with interest" program had all their coins subject to bankruptcy court and customers suffered huge losses. FTX was a popular exchange, and it also went bankrupt, and coins were no longer belonging to the owners but were subject to court decisions. Those are two very recent examples. Quadriga was an exchange that outright stole the customers' coins as a result of greed and bad bets by its owner. Centralized custodians such as crypto exchanges are also targets of hacks with sometimes successful thefts occurring. There have been issues like the ones mentioned all the way back to Mt. Gox, the earliest exchange and those customers are still waiting for their coins to be returned to them.

2) Another downside is access issues. Should the company platform go down for whatever reason, access is lost until the platform regains functionality. This can happen in times of high demand and is usually only a temporary problem.

Sometimes, there are changes in policy about who can use a site as well. American citizens, for example, have had to leave some sites due to changes in site policies and those who did not remove their coins risked loss.

Coinbase has earned a good reputation and is recommended for transactions, and I would consider the risk of holding on the site to be fairly low. However, if you are holding a large amount of value, then you may want to reduce your reliance on a platform for protecting your bitcoin on your behalf. After all, each bitcoiner thought their coins were safe until they weren't.

Bitcoiners have learned the hard way the value of taking personal custody of their bitcoin. As they say, "Not your keys, not your cheese."