Bitcoin withstands systemic risk

Detaching your wealth from custodians doesn't just give you more freedom over your money, it can also reduce risk. Institutional failures are more common than is widely acknowledged. Banks and exchanges have a history of putting themselves in incontrovertible circumstances that lead to either losing customer deposits or relying on government bailouts, which aren't entirely guaranteed.

For many American bank accounts, government FDIC insurance protects deposits up to $250,000. For most American brokerages, SIPC insurance covers up to $500,000 per customer, with a $250,000 limit on cash claims. This coverage is generally considered reliable, despite the federal government carrying roughly $39 trillion in debt, on the basis that more dollars can always be printed if needed.

However, if a custodian loses your bitcoin, there is no authority that can create more bitcoin to cover the loss. This makes trusting a custodian with bitcoin keys riskier than trusting one with traditional assets. When you control your own keys, no institutional failure or systemic collapse can directly affect your bitcoin savings. In that sense, it resembles holding physical cash or gold in your sole possession, with no counterparty standing between you and your wealth.