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The Bitcoin price should have gone even higher than it did...

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jondoe
84
last yearSteemit2 min read

Many Exchanges were practicing fractional reserve banking, artificially creating more supply than existed

The current argument is that easy money, combined with leverage/margin, and influencers all helped push the price of bitcoin way higher than it ever should have been...

Well, I'm here to tell you that probably isn't the case.

You see, many exchanges out there have been practicing fractional reserve banking in order to provide liquidity for their clients.

These exchanges also worked as market makers and liquidity providers, no matter how much of a token actually existed on their exchange.

For example...

Lets say Fred shipped 10 bitcoin to Exchange ABC and sold then for a stable coin, and then Larry goes to Exchange ABC and he buys 20 bitcoin from the Exchange.

The Exchange fills the order to sell Larry 20 bitcoin even though, they only had 10 bitcoin deposited at the Exchange.

This only becomes a problem if/when Larry tries to move those 20 bitcoin off of the exchange.

This is only two players but you get the idea of how it can work with many thousands of players all buying and selling and the Exchange acting as the liquidity provider as well as custodian for customer funds.

It simply doesn't work.

FTX is the prime example of that currently...

image.png

(source: https://twitter.com/BitcoinMagazine/status/1598635540726927363/photo/1)

While all that activity and liquidity does help promote adoption and usage, it also artificially suppresses prices.

Bitcoin's biggest selling point is its fixed supply meaning that if the supply can be artificially inflated at Exchanges where the price is set, it loses a lot of luster.

My guess is, with the amount of interest we had in bitcoin over the last two years, the price of bitcoin would have gone even higher if FTX and many others never practicing fractional reserve banking and artificially increased the supply of bitcoin.

Maybe we even hit that $100k level or beyond.

Something to think about.

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