Research and Markets analyst for Scope Markets Kenya, Kamau of Scope explains why having Bitcoin on an exchange affects its value.
Kamau thinks buying Bitcoin on exchanges is buying an “I owe you,” or “paper Bitcoin.”
Most of you only own a SQL record. #Bitcoin pic.twitter.com/Ptd8JygJt4 — Magoo PhD (@HodlMagoo) May 1, 2022
The hazards of holding Bitcoin on centrally controlled exchanges are frequently highlighted but become more urgent under supply shock.
According to one Kamau, leaving Bitcoin on exchanges is a major factor for price drops.
If you buy Bitcoin at the exchange, you are buying paper Bitcoin, an IOU from your exchange that’s settled the moment you decide to transfer your Bitcoin outside the exchange. That explains the high withdrawal fees. 2/n — Rufas Kamau (@RufasKe) May 8, 2022
Exchanges employ a variety of strategies to prevent Bitcoin withdrawals
The expert also pointed out that exchanges employ a variety of strategies to prevent Bitcoin withdrawals.
Charging hefty withdrawal fees.
Exchanges encourage users to maintain their Bitcoins on the exchanges by providing staking services.
According to Kamau, exchanges are profiting from the sale of Bitcoin held in their custody to other purchasers, whilst the owner of the IOU is getting an annual percentage yield on their Bitcoin.
Kamau asserts that as a result of this mechanism, investors who hold Bitcoin on exchanges suffer a deficit, since it allows exchanges to “print” Bitcoin, causing the price of Bitcoin to fall as the quantity of Bitcoin increases.
He also advised consumers to keep their Bitcoin holdings away from exchanges, stating that doing so was the “logical thing to do if you want to change the world with Bitcoin.”
My father will NOT get rugged when the insolvency of the exchanges due to rampant rehypothecation of . Do your part. Help others get their into the cold silo. pic.twitter.com/0TRRJbDaky — License.