Markets analyst alleges centralized exchanges selling users’ Bitcoin

The risks of holding Bitcoin (BTC) on centralized exchanges are frequently highlighted by security breaches and attacks. According to Rufas Kamau, a research and markets analyst at Scope Markets Kenya, keeping BTC on exchanges is also a role in price drops. He discussed why having Bitcoin on an exchange diminishes its value. 

Buying BTC on exchanges, Kamau argues, is essentially buying an “I owe you,” or IOU, which he refers to 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.

Here's why:

Listen to me pleb, this is important.
1/n

— Rufas Kamau ⚡ (@RufasKe) May 8, 2022

The analyst also claimed that exchanges use a variety of methods to prevent BTC withdrawals, including excessive withdrawal fees. Exchanges, on the other hand, provide staking services to encourage people to keep their BTC on the exchanges.

This is done because the decentralized exchanges sell the Bitcoin they hold to other buyers, while the owner of the IOU earns an average annual yield on their BTC, he explains.

Kamau suggests keeping Bitcoin off crypto exchanges

According to Kamau, this method causes a deficit for investors who store BTC on exchanges since it allows exchanges to “print” Bitcoin, which lowers the price as the supply pseudo-rises. He also encouraged users to keep their BTC holdings off exchanges, calling it the “logical thing to do if you want to change the world with Bitcoin.”

While many people loved and retweeted Kamau’s Twitter thread, not everyone agreed with him. The claims, according to Twitter user Koning Marc, are “wild speculation at best.” Furthermore, Twitter user Felipe Encinas said that if this were the case, exchanges would be able to short BTC without it, which “can’t happen.”

This is not the first time when someone questioned the centralized elements in the crypto industry, which is known for its decentralized characteristic. In December last year, the co-founder and former CEO of Twitter, Jack Dorsey, criticized the centralized nature of Web3. Recently, the founder of JAN3 and former Chief strategy officer at Blockstream, Samson Mow, also questioned the centralized nature of DeFi projects.

It would be interesting to see how crypto exchanges respond to the analyst’s allegations to defend themselves.