Crypto
According to Kamau, a bitcoin that is bought and held on an exchange amounts to little more than an “IOU” or “paper bitcoin.” Exchanges manage the real bitcoin in much the same way as a bank manages customer money; by selling, lending, and leveraging that liquidity for profit.
Or as Kamau puts it, “In simple terms, they print BTC.”
This leads to the proposition that when users buy bitcoin on an exchange, the liquid supply of bitcoins does not decrease as most people might expect.
“That is only true if they buy the IOU from an exchange and then withdraw immediately to self custody,” says Kamau. “If they keep their newly acquired bitcoin on the exchange, they are not reducing the supply, in fact, they are giving the exchange more liquidity to create more fractions.”
Ultimately, by fractionalizing bitcoin, as a bank would fractionalize money, the price of bitcoin is pushed down. For Kamau, this is yet another reason, beyond security and privacy concerns, why BTC investors should remove their bitcoin from exchanges: to push the price of the asset upwards.
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