Can exchanges create imaginary Bitcoin to dump price?
One of the most substantial value propositions of Bitcoin (BTC) is that no one can create more of it apart from its fixed supply. However, an executive from a crypto exchange made a bold claim that some exchanges can create and sell BTC that's only in their system, not on the blockchain, to manipulate the market.
In an interview with Cointelegraph, Serhii Zhdanov, the CEO of crypto exchange Exmo, shared his beliefs that market manipulation is still prevalent in the digital asset space and gave an example of how it can happen.
According to the executive, if anyone wanted to dump the market, it’s possible to go to an offshore exchange that does not go through financial audits and ask for $100 million worth of BTC, using $10 million Tether (USDT) as collateral. He explained that:“The exchange just adds these funds to the account, creating these Bitcoins only in their system. They do not exist on the Bitcoin blockchain. The client or internal market-making team then sells these Bitcoins equivalent to $100 million dumping the Bitcoin price on all exchanges.”
To get their profits, the market manipulators can then profit from arbitrage according to Zhdanov. “After the price is down, they buy the same amount of Bitcoin at a much lower price and make a profit,” he added.
The CEO said that fighting and preventing these potential events requires stronger regulatory policies that are as comprehensive as the stock market. Zhdanov highlighted that offshore exchanges must also be regulated in the same manner as tier one exchanges or have transactions between regulated and offshore exchanges be limited. With this, the executive believes that the market will be a better place for investors of all sizes.
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Additionally, the executive pointed out that one of the barriers to mainstream crypto adoption is the concern over money laundering. According to the CEO, compliance and more comprehensive regulation will make these concerns go away. He said:“Crypto is a new thing that evolves quickly, it’s highly similar to traditional investment vehicles in essence. Therefore, I think there are many things we can borrow from the stock market, where regulations have been tested over a longer time.”
Lastly, Zhdanov explained that at the moment, malicious entities like hackers are more attracted to targeting crypto rather than banks because of holes in security. The executive noted that security is also a key to a broader digital asset adoption.