Which begs the question: What the hell was reddit doing that they didn't immediately implement an image hosting feature to keep users on the platform? Imgur rose to fame because it was the darling image host of reddit users, and it wasn't long before imgur needed to pay hosting costs and started sucking users away from reddit and into their own "imgurian" sharing hub.
I guess the internet back then was still in the "Open effort to make the internet awesome for everyone" phase, and hadn't yet gotten to the adversarial "Capture users and never let them leave" phase.
Running an image host takes a lot of effort. You have to deal with removals, content policing, and the other nasties, as well as just having to deal with the sheer volume of data, which was a much larger concern in the 2010 era internet than it is now.
Reddit at the time just wanted to focus on being a link and text post site, much like HN is.