It seems you are thinking of the crypto exchange as selling crypto to customers and then "holding on" to their money. That's not the right model.
Party A deposits 1 BTC into the exchange. Party B deposits $1000 into the exchange. Party A wants to sell a BTC for $1000 and party B wants to buy a BTC. They trade through the exchange, pay some fee to the exchange, and an entry in a database is changed such that the $1000 in the exchange now belongs to A and the 1BTC in the exchange's wallet now belongs to B.
Since actually holding cryptocurrency is inconvenient for users, many will just choose to keep the BTC on the exchange until they want to use it/sell it for cash or a different cryptocoin. Many crypto users are speculators who view it the same as holding stocks in brokerage accounts and not as just an exchange.
This money is held in the exchange platform but belongs to the users. They should in theory be able to withdraw it whenever they want.
Instead the crypto exchange decides to make use of these idle customer funds and invest in speculative funds/embezzle all the money and all of a sudden there is not enough funds in the exchange for all users to withdraw.
Party A deposits 1 BTC into the exchange. Party B deposits $1000 into the exchange. Party A wants to sell a BTC for $1000 and party B wants to buy a BTC. They trade through the exchange, pay some fee to the exchange, and an entry in a database is changed such that the $1000 in the exchange now belongs to A and the 1BTC in the exchange's wallet now belongs to B.
Since actually holding cryptocurrency is inconvenient for users, many will just choose to keep the BTC on the exchange until they want to use it/sell it for cash or a different cryptocoin. Many crypto users are speculators who view it the same as holding stocks in brokerage accounts and not as just an exchange.
This money is held in the exchange platform but belongs to the users. They should in theory be able to withdraw it whenever they want.
Instead the crypto exchange decides to make use of these idle customer funds and invest in speculative funds/embezzle all the money and all of a sudden there is not enough funds in the exchange for all users to withdraw.