Are Crypto Exchanges Safe? Insurance & Protection Guide
FTX collapsed. Billions were stolen. Yet millions still keep crypto on exchanges. Here's what's actually protected, what isn't, and how to stay safe.
The Hard Truth
Your crypto on an exchange is NOT like money in a bank. There's no FDIC insurance for crypto. If the exchange is hacked or goes bankrupt, you may lose everything. Understanding this is step one to staying safe.
What's Actually Protected?
✅ USD Cash Balances (Limited)
Most US exchanges hold your USD in FDIC-insured bank accounts. This means your uninvested cash (not crypto) is protected up to $250,000 per depositor.
- • Coinbase: USD in FDIC-insured banks
- • Gemini: USD in FDIC-insured accounts
- • Kraken: USD in FDIC-insured partner banks
⚠️ Crypto Assets (Not FDIC Insured)
FDIC does NOT cover cryptocurrency. Your Bitcoin, Ethereum, and other crypto have no government insurance. Some exchanges have private insurance policies, but they don't cover everything.
📋 Private Insurance (Varies)
Some exchanges have private insurance policies for crypto held in hot wallets. This is NOT comprehensive:
| Exchange | Insurance Coverage | What It Covers |
|---|---|---|
| Coinbase | $255M (hot wallet) | Theft/hack of hot wallet only |
| Gemini | $200M+ (hot wallet) | Theft/hack of hot wallet only |
| Crypto.com | $750M (total) | Cold storage theft |
| Kraken | Not disclosed | 95% cold storage focus |
What's NOT Protected
❌ Exchange Bankruptcy
If an exchange goes bankrupt (like FTX), your crypto becomes part of the bankruptcy estate. You're an unsecured creditor—you may get pennies on the dollar, years later, or nothing.
❌ Your Account Being Hacked
Insurance typically covers exchange-level breaches, NOT individual account hacks. If someone phishes your password and drains your account, that's generally on you.
❌ Price Crashes
No insurance protects against market losses. If Bitcoin drops 50%, you lose 50%—that's investing, not theft.
❌ Cold Storage Theft
Most insurance only covers "hot wallets" (online storage). 95%+ of assets are in cold storage, which has different (often uninsured) risk profiles.
Exchange Security Comparison
| Exchange | Ever Hacked? | Cold Storage | Proof of Reserves |
|---|---|---|---|
| Coinbase ⭐ | Never | 98% | Yes (public company) |
| Kraken ⭐ | Never | 95% | Yes |
| Gemini ⭐ | Never | 95%+ | Yes |
| Crypto.com | 2022 ($34M) | 100% claimed | Yes |
| Binance.US | Parent: 2019 | Not disclosed | Partial |
⭐ = Never-hacked exchanges with transparent security practices
How to Protect Your Crypto
1. Use Never-Hacked Exchanges
Coinbase, Kraken, and Gemini have never suffered security breaches. Past performance doesn't guarantee future security, but it's a good indicator of security culture.
2. Enable All Security Features
Use hardware security keys (YubiKey) or authenticator apps for 2FA—never SMS. Enable withdrawal address whitelisting. Use unique, strong passwords.
3. Don't Keep Large Amounts on Exchanges
"Not your keys, not your coins." For significant holdings ($1,000+), move to a hardware wallet (Ledger, Trezor). Keep only trading amounts on exchanges.
4. Verify Proof of Reserves
Post-FTX, reputable exchanges publish proof-of-reserves audits. Check that the exchange actually holds the crypto they claim. Avoid exchanges without transparent reserves.
5. Diversify Across Platforms
Don't keep everything on one exchange. If you must use exchange custody, spread across 2-3 reputable platforms to reduce single-point-of-failure risk.
The FTX Lesson
FTX was the #2 crypto exchange. It had celebrity endorsements, Super Bowl ads, and appeared trustworthy. Then it collapsed in days, taking $8+ billion in customer funds.
The lesson: No exchange is "too big to fail." Even regulated US exchanges could theoretically face issues. The only crypto you truly control is crypto in your own wallet.
If you're not willing to learn self-custody, at minimum use never-hacked, regulated exchanges with proof of reserves.
Frequently Asked Questions
Is my crypto FDIC insured on Coinbase?
No. Your USD cash balance is FDIC insured (up to $250K). Your crypto is NOT FDIC insured—no crypto is. Coinbase has private insurance for hot wallet theft, but this doesn't cover bankruptcy or all loss scenarios.
What happens to my crypto if an exchange is hacked?
It depends on the exchange's insurance and response. Reputable exchanges (Crypto.com in 2022, Binance in 2019) reimbursed users from their own funds. Others (Mt. Gox) left users waiting years. There's no guarantee.
Should I use a hardware wallet instead?
For significant holdings, yes. Hardware wallets (Ledger, Trezor) give you full control. But self-custody has risks too—lose your seed phrase, lose everything. For small amounts or active trading, exchange custody is reasonable with proper security.
The Bottom Line
Crypto on exchanges is NOT as safe as money in a bank. FDIC covers your USD cash, not your crypto. Private insurance exists but has limits.
Use never-hacked exchanges (Coinbase, Kraken, Gemini), enable all security features, and consider moving significant holdings to self-custody. The safest crypto is crypto you control.
Compare Exchange SecurityLast updated: December 18, 2025