That is a very common misconception, and I'm really glad you asked this because it gets many newcomers into trouble!

To give you peace of mind: Simply transferring your crypto off an exchange to a self-custodial wallet is NOT a taxable event. You are just moving your own property from venue A to venue B. The government doesn’t tax you for moving money from your left pocket to your right pocket.

The reason your friend ended up owing a lot of money is likely due to Trading or Swapping (which are Taxable Events). In many countries, every time you sell crypto or swap one coin for another (like selling BTC to buy ETH), it triggers a capital gains tax. If he made many frequent trades during a bull market but didn't set aside cash for taxes—or if the market crashed afterward—he would still owe taxes on those realized gains, even if he lost the actual money later.

Moving your assets to a hardware wallet actually protects you from that kind of "panic trading" and encourages long-term holding (HODL), which often qualifies you for lower tax rates in the future. Just remember to keep track of your original purchase prices (Cost Basis) for when you do eventually decide to sell. Taking your funds off the exchange is one of the smartest and safest moves you can make!