Why must some Bitcoin be stored on-chain instead of all on exchanges? Three core reasons are worth understanding:

First, owning your private keys is true ownership. This principle has no exceptions—no matter how large or reputable the exchange is, once your assets are controlled by someone else’s wallet, you are exposed to risk.

Second, the risks of exchanges and the risks inherent in the Bitcoin system itself are two different things. Price volatility and market adjustments are systemic, but exchanges may face security breaches, regulatory shocks, or even bankruptcy and liquidation. The two should not be confused.

More importantly, real black swan events often stem from market panic rather than technical failures. When a wave of withdrawal demands hits, exchanges may face liquidity pressure, and later entrants could be forced out. At this point, Bitcoin held on-chain is the true insurance.

So no matter how great the benefits, always leave yourself a backup.