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There are growing concerns that paper Bitcoin, or Bitcoin IOUs issued by exchanges and institutions without holding the actual BTC, may be suppressing Bitcoin's price[1]. A few key points:
  • Exchanges can sell paper Bitcoin without anyone noticing, as Bitcoin's blockchain is auditable but each exchange has its own internal accounting system[1].
  • The FTX collapse revealed massive Bitcoin rehypothecation, with FTX having 80K BTC on their books but zero actual BTC, essentially increasing Bitcoin's supply issuance by 25% in 2022[1].
  • Bitcoin ETFs have been buying record amounts of BTC since launching in 2023, but the price has remained flat, raising suspicions of price suppression[1].
  • Centralized exchanges have no obligation to prove they hold the BTC they claim, and could be creating paper Bitcoin at will[1].
  • The solution is for more Bitcoin to be held in self-custody by individuals to reduce the risk of paper Bitcoin and potential bank runs on exchanges[1].
However, some argue the ETFs are not directly impacting price due to arbitrage opportunities, and that long-term holder selling and miner selling are more likely factors[1]. Ultimately, the extent to which paper Bitcoin is suppressing prices remains unclear, but the risks highlight the importance of self-custody.
Sources [1] The Hidden Hand: Is Paper Bitcoin Suppressing BTC Prices? | HackerNoon https://hackernoon.com/the-hidden-hand-is-paper-bitcoin-suppressing-btc-prices [2] 600 Stories To Learn About Crypto - HackerNoon https://hackernoon.com/600-stories-to-learn-about-crypto [3] HackerNoon - read, write and learn about any technology https://hackernoon.com [4] Bitcoin ($BTC) Price, Wiki, Data and Crypto News | HackerNoon https://hackernoon.com/coins/BTC [5] Technology Search Results for paper-bitcoin - HackerNoon https://hackernoon.com/tagged/paper-bitcoin
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Decent summary. Read the whole thing, though.
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Anything is possible. However I seriously doubt it.
  • Price of ETF is set from physical exchanges.
  • Given that, how would paper shorting exert downward physical pressure on price?
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The article covers all of that and more.
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