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Is my Bitcoin safe on an exchange?

Leaving Bitcoin on an exchange is convenient, but it means you rely on the firm. Here is what protection you actually have in the UK, what has gone wrong before and how to reduce the risk.

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Who holds the keys

When your Bitcoin sits on an exchange, the exchange holds the keys and you hold a promise. That is called custody. If the firm is hacked, freezes withdrawals or goes bust, you may not get your coins back. That is where the saying "not your keys, not your coins" comes from.

What protects you in the UK

• FCA registration means the firm has passed anti money laundering checks. It is a minimum, not a safety guarantee. Search any firm on the FCA register.
• No FSCS cover. The Financial Services Compensation Scheme does not cover crypto. If a crypto firm fails, there is no £85,000 safety net like a bank account.
• The Financial Ombudsman usually cannot help with crypto complaints unless the firm does other regulated business.
• Insolvency. If a firm fails, your coins may be treated as part of its assets, depending on how it held them. Getting anything back can take years.

What has gone wrong before

Mt. Gox, once the largest Bitcoin exchange, collapsed in 2014 and customers waited about ten years for partial repayment. FTX collapsed in 2022 and froze withdrawals overnight. Big hot wallet hacks still happen most years. Our article on why exchange hacks keep happening explains the pattern.

How to check a firm

• Is it on the FCA register under the exact name and website you are using?
• Is it on the FCA warning list? Check ScamSmart.
• Does it publish proof of reserves, ideally with an outside check of what it owes customers?
• Can you withdraw Bitcoin to your own wallet, or only sell for pounds?

How to cut the risk

1. Buy on a registered firm and turn on strong two factor login with an app, not text messages.
2. Withdraw anything you plan to keep to your own wallet. Follow how to move Bitcoin from an exchange to your wallet.
3. Back it up properly: how to back up a seed phrase.
4. Keep only what you are actively trading or selling on the exchange.

New to wallets? Start with cold wallet vs hot wallet.

Questions people ask

Is Bitcoin on a UK exchange protected by the FSCS?
No. The FSCS does not cover crypto, so there is no compensation scheme if a crypto firm fails.

Does FCA registration mean an exchange is safe?
No. It means the firm passed anti money laundering checks. It does not protect your coins if the firm fails.

What is the safest way to hold Bitcoin?
For savings, many people move it to a hardware wallet they control and keep a safe offline backup of the recovery words.

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Not financial advice. General education only. Do your own research.