Money at risk as Exchanges might sell your Collaterlized Bitcoin twice

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Exchanges could be selling your Bitcoin if you stake it on their platforms according to analyst Rufas Kamau.

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.”

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.

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.
  • 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.”

Backlash to Kamau’s assessment of exchanges and self custody

Not everyone agreed with Kamau’s analysis.

Koning_Marc, a Twitter user, replied to the charges by calling them “wild speculation at best.”

Additionally, Twitter user Felipe Encinas responded that if this were the case, exchanges would be allowed to short Bitcoin even if they did not have any of it.

This “can’t happen,” he said.

No denial that this may be happening at some exchanges

LBank Chairman Eric He, on the other hand, warned Cointelegraph that exchanges who engage in such behavior would be taught a lesson. He went on to explain:

“The market will teach exchanges that sell users’ Bitcoin a lesson because they will not be able to buy back the Bitcoin they sold. Exchanges like this will surely fail.”

He went on to say that flourishing and developing exchanges are “strong believers” who believe BTC can reach $100,000.

Most have been purchasing more instead of doing unsavory things like selling other people’s coins.

Binance has also commented on the matter.

A Binance official informed Cointelegraph that exchanges are not permitted to move their users’ cash without their authorization.

According to Binance, the business does not take positions and that users “crypto” assets are safely held and custodied in offline, cold storage facilities managed within the exchange.

Bitcoin Fundamentals: Bitcoin Left on Exchanges is not Safe

It’s been said that “if you can’t hold it, you don’t own it” in the precious metals space. 

Physically holding metal rather than custodial gold and silver makes an excellent analogy for Bitcoin and exchanges.

The physical essence of Bitcoin manifests in the form of a seed phrase rather than the coin itself, which is simply code. 

Cash is an excellent analogy for exchange held vs. self-held Bitcoin. 

Financial systems are so dependent on electronic rails that many individuals don’t bother storing paper currency anymore. 

Plastic is easier to use than paper.

After the government blocked their bank accounts, many Canadians are suddenly learning that having some physical cash helps them to continue buying food and essentials.

“Cryptocurrency” exchanges are no exception, and will almost definitely follow federal regulations.

CEO Jesse Powell stated as much online. When questioned by a Twitter user if Kraken users’ accounts may be frozen, he replied:

“100% yes it has/will happen and 100% yes, we will be forced to comply. If you’re worried about it, don’t keep your funds with any centralized/regulated custodian. We cannot protect you. Get your coins/cash out and only trade p2p.”

If you’re worried about financial weaponization, he says take your assets from his service and utilize them as intended. 

To transfer funds from an exchange to a self-custodial wallet, users must store their seed phrase.

Taking Self Custody

Once coins have been acquired through an exchange, it is critical to get your Bitcoin out of the exchange and into your own possession.

In order to truly use Bitcoin, one must transfer their holdings to a non-custodial wallet, options below.

There are a plethora of excellent wallets. The importance of writing down your seed phrase, keeping it offline, and keeping it secure cannot be stressed enough.

The CryptoTag is one of the options I utilize.

Hardware wallets enable users to store their Bitcoin securely and to retain sovereign custody over their Bitcoin.

A user should never reveal their seed phrase to anyone, for any reason or for any purpose. Anyone who asks is most likely phishing for information to hack into their accounts. No legitimate Bitcoin organization will ever ask you for your seed phrase, and this includes Coinbase. Always acquire hardware from a merchant rather than through a third party such as EBay or Amazon.

Hardware Wallet options:

Take small steps toward becoming a sovereign Bitcoiner and learn as you go

  • Take steps to remove your Bitcoin from exchanges.
  • Learn about the procedures and seek guidance from a reputable mentors. 
  • Test with small transactions before bigger sums.
  • Please take your time.
  • Make use of best practices, study, and do your own research throughout the process.
  • Bitcoiner.guide is an educational website that includes information on Bitcoin privacy and best practices, as well as a Q&A section.

Teach Others and Distribute Bitcoin Best Practices.

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