<p>I think there is very little oversight of cryptocurrency businesses. For example see fca.org.uk/consumers/cryptoassets which says <strong>&quot;most cryptoassets/services are not regulated&quot;</strong>. Even the more tightly regulated conventional UK banks only have to meet a minimum reserve ratio of 12%.</p>
<p>So yes, custodial services may be inflating the Bitcoin money supply and may not have reserves sufficient to simultaneously repay all debts to their customers.</p>

CC BY-SA 4.0
2024-05-28T09:24:55.767Z
2024-05-28T09:24:55.767Z
RedGrittyBrick
<p>It's certainly happened before when there was less regulation or among the smaller, less-regulated exchanges. Whenever an exchange disables withdrawals for everyone, it could be due to them running into liquidity issues like that.</p>
<p>Large exchanges are now regulated by various money services authorities in part to prevent this exact scenario.</p>

CC BY-SA 4.0
2021-02-20T10:36:51.983Z
how is it prevented? what is regulated? It would take a 1 to 1 requirement so that it is not inflated: if all customers have 8000 bitcoins, then the exchange must hold 8000 bitcoins
nonopolarity
CC BY-SA 4.0
2021-02-20T11:49:56.097Z
@nonopolarity Financial audits by regulators and such as a condition of maintaining a license. The requirements are different for every state/jurisdiction, but regulated exchanges should hold 1 bitcoin for every 1 bitcoin owned by its customers.
ieatpizza
CC BY-SA 4.0
2021-02-20T16:51:10.030Z
"regulated exchanges should hold 1 bitcoin for every 1 bitcoin owned by its customers." Is that an opinion or hope, or is it a fact? You are saying an exchange in US or in Canada or South America or Asia may vary too?
nonopolarity
CC BY-SA 4.0
2021-02-21T01:54:18.760Z
@nonopolarity That's the goal of properly designed regulation. The exact specifics of how that regulation is implemented is jurisdiction specific.
ieatpizza
CC BY-SA 4.0
2021-02-20T04:50:49.577Z
2021-02-20T04:50:49.577Z
ieatpizza
<p>For example, would an exchange of Bitcoin hold accounts for 100,000 customers, and they collective have 8000 bitcoins, but the exchange itself does not hold 8000 bitcoin, but only 1600 for customers to redeem (to transfer to their own wallet if they want to), and therefore, inflating the bitcoin supply by 6400 bitcoins?</p>

<money-supply><fractional-reserve>
Do centralized exchanges misrepresent their Bitcoin holdings?
nonopolarity
# Do centralized exchanges misrepresent their Bitcoin holdings?

(Asked by: username_0 on 2021-02-20)

For example, would an exchange of Bitcoin hold accounts for 100,000 customers, and they collective have 8000 bitcoins, but the exchange itself does not hold 8000 bitcoin, but only 1600 for customers to redeem (to transfer to their own wallet if they want to), and therefore, inflating the bitcoin supply by 6400 bitcoins?

**Tags:** money-supply, fractional-reserve


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## 2 answers

### Answer by username_1 on 2024-05-28. Score: 0

I think there is very little oversight of cryptocurrency businesses. For example see fca.org.uk/consumers/cryptoassets which says **"most cryptoassets/services are not regulated"**. Even the more tightly regulated conventional UK banks only have to meet a minimum reserve ratio of 12%.

So yes, custodial services may be inflating the Bitcoin money supply and may not have reserves sufficient to simultaneously repay all debts to their customers.


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### Answer by username_2 on 2021-02-20. Score: 0

It's certainly happened before when there was less regulation or among the smaller, less-regulated exchanges. Whenever an exchange disables withdrawals for everyone, it could be due to them running into liquidity issues like that.

Large exchanges are now regulated by various money services authorities in part to prevent this exact scenario.

> **Comments:**
> **username_0**: how is it prevented? what is regulated? It would take a 1 to 1 requirement so that it is not inflated: if all customers have 8000 bitcoins, then the exchange must hold 8000 bitcoins  
> **username_2**: @username_0 Financial audits by regulators and such as a condition of maintaining a license. The requirements are different for every state/jurisdiction, but regulated exchanges should hold 1 bitcoin for every 1 bitcoin owned by its customers.  
> **username_0**: "regulated exchanges should hold 1 bitcoin for every 1 bitcoin owned by its customers." Is that an opinion or hope, or is it a fact? You are saying an exchange in US or in Canada or South America or Asia may vary too?  
> **username_2**: @username_0 That's the goal of properly designed regulation. The exact specifics of how that regulation is implemented is jurisdiction specific.  

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