A recent survey conducted by CoinGecko examining cryptocurrency storage behavior has found that eight out of ten investors prefer hot wallets to store their digital assets. The survey was conducted between December 2021 and January 2022 and received responses from 421 individual investors. The results also showed that seven out of ten participants held their assets in centralized exchanges, while three out of ten preferred cold storage.
The popularity of self-custody hot wallets reflects the community sentiment after the FTX collapse, which occurred in November 2021. The report indicates that the preferred rate of wallets tied to centralized exchanges is still considerably high, which the report justifies by saying that it is tied to the current dominance rate of centralized exchanges (CEXs) over decentralized ones. Most crypto holders remain reliant on centralized exchanges for on- and off-ramping, as well as for buying and selling crypto, to the extent that holders prioritize convenience over security.
Nevertheless, the survey reports that there is a small percentage of surveyed participants that preferred cold storage for their crypto. However, the percentage was not strong enough to suggest a change in community sentiment.
In November 2021, a survey conducted by CryptoSlate revealed that the FTX crash pushed Bitcoin (BTC) reserves into self-custody wallets. At that time, the amount of BTC held in self-custody wallets almost reached 15 million BTC, accounting for 78% of the circulating supply. The FTX collapse also motivated crypto organizations to turn to self-custody services. Crypto exchange platform Robinhood started working on its own self-custody wallet in December 2021 and launched it in January 2022. The crypto firm Juno also publicly advised its users to turn to self-custody or sell their crypto assets in January 2022.
The shift towards self-custody has also increased the usage of cold storage during the same period. According to data from December 2021, 450,000 BTC held on an exchange or a hot wallet before 2021 had been moved to cold storage throughout the year.
Cold storage protects digital assets by ensuring they are stored offline, eliminating the risk of being hacked or stolen. Hot wallets, on the other hand, are connected to the internet and are therefore more vulnerable to security breaches. Hot wallets offer greater convenience as they allow for faster transaction processing and easier access to funds. However, hot wallets should only be used for small transactions as they represent higher security risks. For larger transactions or long-term holding, cold storage is a safer option.
The CoinGecko survey results highlight the importance of educating investors about the different types of cryptocurrency storage available and how to use them safely. It also shows that, despite the rise of self-custody wallets, centralized exchanges still dominate the market in terms of trading volume and accessibility.
In conclusion, while the popularity of self-custody hot wallets is increasing, the convenience and accessibility offered by centralized exchanges are still favored by the majority of crypto investors. As the industry evolves and develops, it will be interesting to see how this trend shifts over time and how investors’ perceptions of security change. Regardless of the storage option you choose, it is essential to take precautions and ensure that your digital assets are always secure.