March 29, 2024

Is it safe to store cryptocurrency on an exchange?

Is it safe to store cryptocurrency on an exchange?

Storing digital assets on an exchange comes with additional risks. We have identified 5 reasons why to storethere cryptocurrency for a long period of time – not the best idea.

Hacker attacks

Since 2011, it has been stolen from centralized exchanges$ 12.6 billion worth of cryptoassets, adjusted for inflation. Mt. Gox, whose founders ignored more than two years of hacks, lost 650,000 BTC users.

Unfair leadership

Any exchange can mismanage funds or lose them, block user accounts, having complete control over it. 

Vivid examples of recent years:QuadrigaCX, whose owner died, taking access to private keys with him to the grave, thereby losing access to user funds worth $190 million. Another example – Einstein Exchange, whose founder and staff went into hiding, depriving users of access to their assets.  

Technical vulnerabilities and glitches

Trading volumes on exchanges are growing day by day. Servers often fail to cope with this load, slowing down transactions, reflecting up-to-date information, or simply failing. With intensive trading, the trader risks missing out on a profitable buy / sell offer or close orders at the wrong time.

Manipulation

Crypto exchanges are often accused of price manipulationand inflated trading volume. Most platforms artificially inflate transaction volumes using bots or create artificial exchange rate movements. Traders can create fictitious orders to buy and sell the same asset, increasing demand for it; whales can sell off cryptocurrencies, which causes panic attacks among small traders and pushes them to sell assets, and then buy the asset at the minimum price. 

Legislation uncertainty

After a decade of its existencecryptocurrency does not have a stable legal status in most countries. In addition, politics can change at any time from being ignored by the state to being strictly banned, as happened in Russia and China. In the event of a change in the state cryptocurrency rate, the user will not be able to legally withdraw his assets from the trading platform or the exchange may stop serving users of a certain jurisdiction.

There are various storage methodscryptocurrencies, and cold wallets – the safest option. Storing cryptocurrency on an exchange is justified in case of taking short-term spot positions and derivatives positions. It's always better to be safe than sorry. 

Subscribe to ForkNews on Telegram