How Much Crypto Should Stay on Exchanges? | Security 101

Cryptocurrency exchanges are the gateways to the digital asset world, offering a convenient way to buy, sell, and trade crypto. However, keeping your funds on an exchange comes with risks. In this post, we’ll explore how much crypto you should keep on exchanges, the potential dangers, and best practices for securing your assets in 2025.

Why Keep Crypto on Exchanges?

Exchanges like Binance, Coinbase, and Kraken provide user-friendly platforms for trading and managing cryptocurrencies cryptocurrencies. They offer:

• Liquidity: Easily trade crypto for other assets or fiat currency.
• Convenience: Access your funds anytime for quick transactions.
• Trading Tools: Advanced features like margin trading, futures, and staking.

However, exchanges are not banks. They’re not insured like traditional financial institutions, and hacks, mismanagement, or regulatory issues can lead to significant losses. The collapse of FTX in 2022, where billions in user funds were lost, serves as a stark reminder.

Risks of Storing Crypto on Exchanges

1. Hacking Vulnerabilities: Exchanges are prime targets for cyberattacks. In 2024 alone, over $1.7 billion was stolen from centralized exchanges, according to Chainalysis.
2. Insolvency Risks: Poor management or fraud can lead to exchange failures, as seen with FTX and Mt. Gox.
3. Lack of Control: You don’t truly own your crypto on an exchange. The exchange controls the private keys, meaning they can freeze or seize your funds.
4. Regulatory Uncertainty: Governments may impose restrictions, impacting access to your assets.

Given these risks, it’s critical to evaluate how much crypto to keep on exchanges.

How Much Crypto Should You Keep on Exchanges?

There’s no one-size-fits-all answer, but here are guidelines based on your goals and risk tolerance:

1. For Active Traders

If you trade frequently, you may need to keep a portion of your portfolio on exchanges for liquidity. A common rule of thumb is to store only what you plan to trade in the short term—typically 5-20% of your total crypto holdings. This minimizes exposure while allowing flexibility.

2. For Long-Term Holders (HODLers)

If you’re holding crypto as a long-term investment, keep as little as possible on exchanges—ideally 0-5%. Move the rest to a secure, non-custodial wallet (more on this below).

3. For Casual Users

If you occasionally buy or sell crypto, limit your exchange balance to what you’re comfortable losing. Treat it like cash in your pocket: convenient but not your life savings.

Factors to Consider

• Exchange Reputation: Stick to well-established platforms with strong security and compliance, like Coinbase or Kraken. Research their track record and user reviews.
• Portfolio Size: If you hold a large amount of crypto (e.g., $50,000+), prioritize security and store most of it offline.
• Trading Frequency: Day traders may need more funds on exchanges than someone checking their portfolio monthly.
• Geopolitical Risks: If you’re in a region with unstable regulations, minimize exchange holdings to avoid sudden restrictions.

Best Practices for Crypto Storage

To safely manage your crypto, follow these strategies:

1. Use Non-Custodial Wallets

Non-custodial wallets give you full control over your private keys. Options include:

• Hardware Wallets: Devices like Ledger or Trezor store your crypto offline, making them highly secure. Ideal for large holdings.
• Software Wallets: Apps like MetaMask or Trust Wallet are convenient for smaller amounts but less secure than hardware wallets.

2. Enable Two-Factor Authentication (2FA)

Always enable 2FA on exchange accounts, preferably using an authenticator app (e.g., Google Authenticator) rather than SMS, which can be hacked.

3. Diversify Storage

Don’t put all your crypto in one place. Spread it across:

• A small amount on a reputable exchange for trading.
• A hardware wallet for long-term storage.
• A software wallet for everyday transactions.

4. Regularly Withdraw Profits

If you make gains from trading, transfer profits to a secure wallet rather than letting them sit on the exchange.

5. Stay Informed

Monitor news about your chosen exchange. Platforms like CoinGecko and X provide real-time updates on exchange issues, hacks, or regulatory changes.

The 80/20 Rule for Crypto Security

A practical approach is the 80/20 rule:

• 80% in cold storage (hardware wallet or paper wallet) for long-term security.
• 20% on exchanges or hot wallets for trading and transactions.

This balance ensures most of your wealth is safe while maintaining flexibility. Adjust the ratio based on your needs, but always prioritize security.

Conclusion

Keeping crypto on exchanges is a trade-off between convenience and risk. For most users, limiting exchange holdings to 5-20% of your portfolio strikes a balance between accessibility and security. Active traders may keep slightly more, while HODLers should aim for near-zero. By using non-custodial wallets, enabling 2FA, and staying informed, you can protect your assets in the volatile crypto world.

Ready to secure your crypto? Research reputable exchanges, invest in a hardware wallet, and take control of your financial future today.

Disclaimer: This post is for informational purposes only and not financial advice. Always do your own research before making crypto decisions.