This is post is taken from the Frequently Asked Questions.

Cold storage is just a term meaning that you should take self-custody of your bitcoin, most commonly by using a device that secures your bitcoin that is not directly connected to the Internet. Anything that touches the Internet risks being able to be more easily hacked. The goal is to control the private keys to your bitcoin yourself (aka self-custody) and not to trust any third-party. Bitcoin is bearer instrument that you should take into self-custody. Another way to think about it is if you are physically holding gold in your home vault (self-custody) versus trusting your gold to be held at a bank (third-party custody).

Most people that buy their bitcoin on Coinbase likely hold their bitcoin on Coinbase as well. Coinbase likes this because it encourages trading, which is how Coinbase makes its money. Bitcoin-only exchanges will encourage you to take bitcoin into self-custody. If you hold your bitcoin on Coinbase or any exchange, then that exchange could block your account and restrict access to your bitcoin.

Or if we run again into an FTX situation, your bitcoin might not have been real bitcoin in the first place. FTX was selling “paper” bitcoin that was just recorded on their own ledgers. When everyone tried to take their bitcoin off FTX, there was not enough real bitcoin available and FTX was forced into bankruptcy.