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
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
To discourage you from withdrawing your Bitcoin, the exchange gives you discount on transaction costs based on your exchange balance, the more you keep in the exchange the bigger the carrot You also get to stake your BTC. 3/n
So why do exchanges need you to keep your BTC with them? Ans: Fractional Reserve Banking system. An exchange is a DeFi bank. It sells and lends your Bitcoin for profit. Let's say you stake your 1 Bitcoin at the exchange for 1 year without touching it. 4/n
The exchange sells/lends say 0.9 of your Bitcoin to person XX, but on Book, you still have your BTC IOU and you are satisfied because you will get a small APY after a year. Person Xx repays and they rinse repeat the process over and over. In simple terms, they print BTC 5/n
So, how does this make u net short? Well, the price of Bitcoin is determined through demand and supply. When scarce, price goes up. When in plenty, price goes down. When exchanges print, they raise supply, that is, make it more plenty 6/n
So, when a new pleb buys an amount of Bitcoin, it is a common understanding that they are expected to reduce the amount in supply. That is only true if they buy the IOU from an exchange and then withdraw immediately to self custody. 7/n
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. This pushes the price of Bitcoin down. 8/n
So, here is your question pleb, if everyone of you logged in to their exchange and withdrew their Bitcoin right now, do you think the exchanges have all that Bitcoin available to honour all the IOU Bitcoin they have issued? 9/n
"Keep your Bitcoin off the exchange" has always been the logical thing to do if you want to change the world with Bitcoin. 10/n
If you liked this thread, read more of my thoughts about Bitcoin here.. https://forbes.com/sites/rufaskamau/?sh=4aebe3f41b03 nn
Rufas Kamau's stories. I write about crypto & fintech projects and their impact in the world.
