Market analysts have argued that Bitcoin held on exchanges is nothing more than a “paper Bitcoin” that lowers the price of BTC. Scope Markets Kenya’s Rufas Kamau made a statement in a Twitter thread on May 8, but not everyone agrees with the analyst’s assertions.
According to Kamau, the bitcoins you buy and hold on exchanges are just “IOUs” or “paper bitcoins.” Exchanges manage real Bitcoin in much the same way that banks manage their clients’ money. By selling, lending and leveraging that liquidity for profit.
Or, as Kamau puts it, “In short, it prints BTC.”
This leads to the suggestion that when users buy Bitcoin on an exchange, Bitcoin’s liquidity supply will not decrease as most people would expect.
“This is only true if you buy an IOU on an exchange and then immediately withdraw it to self-management,” says Kamau. “Storing newly acquired bitcoins on an exchange is not reducing the supply, but actually providing more liquidity to the exchange to make more fractions.”
In the end, the price of Bitcoin is lowered by splitting bitcoins like a bank splitting money. For Kamau, aside from security and privacy concerns, this is another reason why BTC investors should remove Bitcoin from exchanges to drive up asset prices.
The point made by Kamau has sparked a lively discussion on crypto Twitter, with several posters questioning the veracity of his claims.
“Are you talking about an exchange based in the US?” asked one skeptic. “I cannot represent other countries, but the exchange would have closed yesterday if it had acted as a partial-reserve bank without a bank charter. This cannot be right.”
When asked for evidence to support his claim, Kamau argued that the matter was worth pursuing further, suggesting that his beliefs were based more on theory than fact.
Richard Heart was one of those opponents who completely ignored the fractional bank part of the argument and took a different point of view. Instead, Heart challenged the statement that holding BTC on an exchange would “net sell” investors.
“No,” he said. mind. “It’s a net-long with opponent risk. To see how it works, see Mt. See Gox or QuadrigaCX.”
In crypto terminology, this sentiment is often expressed as “not a key, not a bitcoin.” Whether Kamau’s pet theory is right or wrong, it’s a reminder that there are compelling reasons to keep your bitcoins in cold wallets rather than exchanges.
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