(Before I start this topic, I just want to say that I don't want to pick on Coinbase here specifically, but they are the biggest with over 10% of all Bitcoin being held for customers, so they are a good example--but assume here that this question could apply to any digital asset custodian).
Today, Coinbase is holding over $100 billion in Bitcoin.
While I am sure they go to great lengths to secure this money (!), we'd have to concede there is a non-zero chance they could lose some or all of this Bitcoin to theft or simply losing it.
And then what?
Coinbase offers this vague promise on their website that they are
"partially insured", but does anybody know what that actually means? If they are hacked and the addresses get destroyed or stolen (we'd never know which), then... where would that leave Coinbase depositors?
Coinbase carries only crime insurance. If they experience data breaches or attack and you lose money because of that, they'll give you a refund but Coinbase doesn't claim how much money they'll refund. They also don't say how much money they have insured, so, if you lose $1000 because of their mistake, you might receive $1000 or $200 or nothing, no one knows exactly because even if they partner with other insurance companies and are insured, there aren't guarantees that insurance company will cover the losses. There have been many cases when insurance company turned into a scam in the end.