An analyst in crypto claimed that trading Bitcoin on exchanges gives them the ability to sell it. Cointelegraph reached out directly to the exchanges for their responses.
Hacks and security breaches often highlight the dangers of Bitcoin ( Bitcoin) stored on centralized exchanges. An analyst even suggested that price drops can also be caused by BTC being kept on exchanges.
Rufas Kamau is a Scope Markets Kenya research and markets analyst. He explained why BTC trading on exchanges lowers its price. Kamau believes that buying BTC via exchanges amounts to purchasing an “I owe” or IOU. He describes this as “paper Bitcoin.”
If you buy Bitcoin and keep it at the exchange, you are net short, you are contributing to the price of Bitcoin going down, even if your goal is higher prices.— Rufas Kamau ⚡ (@RufasKe) May 8, 2022
Listen to me pleb, this is important.
An analyst pointed out that there are many ways exchanges discourage withdrawals of BTC. For example, high withdrawal fees. Exchanges, on the other hand, encourage BTC to remain on their exchanges through offering staking services.
Kamau claims that this happens because exchanges sell Bitcoin they hold to buyers, while the IOU owner keeps their BTC and earns an annual percentage return.
Kamau stated that this allows exchanges to “print” Bitcoin, which causes the price to drop. He advised users to avoid exchanges if they want to make Bitcoin a global currency.
Many accounts liked and retweeted Kamau’s Twitter thread, but not all agreed. Twitter user Koning_Marc replied, calling these allegations “wild speculation” at best. Felipe Encinas also responded that, if this was true, exchanges could shorten BTC without actually having it. This “can’t happen.”
This is something that crypto exchanges acknowledged. Eric He, chairman of LBank, told Cointelegraph that any exchanges doing this will be punished. He explained:
“The market will teach those exchanges that sell Bitcoin to users a lesson. They will not be in a position to buy back the Bitcoin they have sold.” These exchanges will fail.
He explained that the digital asset exchanges that are flourishing and expanding are made up of “firm crypto believers”, who believe that Bitcoin can reach $100,000 and have been buying more than selling their coins.
Binance also addressed the issue. A Binance spokesperson stated that exchanges cannot move funds of users without their consent. Binance spokespersons stated that they do not take positions and that users’ crypto assets are safe stored in cold storage facilities.