Can exchanges create imaginary Bitcoin to dump the price? The exception for the crypto platform responds

One of the most significant value propositions of Bitcoin (BTC) is that no one can make more of it except for the fixed supply. However, an executive from a crypto exchange made a bold claim that some exchanges can create and sell BTC that is only in their system, not on the blockchain, in order to manipulate the market.

In an interview with Cointelegraph, Serhii Zhdanov, CEO of crypto exchange Exmo, shared his belief that market manipulation is still prevalent in the digital asset space and gave an example of how it can happen.

According to the manager, if someone wants to dump the market, it is possible to go to an offshore exchange that does not go through financial audits and ask for $100 million worth of BTC and use $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 the internal market making team then sells these Bitcoins equivalent to $100 million which dumps 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 money,” he added.

The CEO said that combating and preventing these potential events requires stronger regulatory guidelines that are as comprehensive as the stock market. Zhdanov highlighted that offshore exchanges must also be regulated in the same way as tier-1 exchanges or have limited transactions between regulated and offshore exchanges. With this, the manager believes that the market will be a better place for investors of all sizes.

Related: Analyst Claims Exchanges Are Selling Your Bitcoin, Crypto Trading Platforms Respond

In addition, the director pointed out that one of the obstacles to mainstream crypto adoption is money laundering concerns. According to the CEO, compliance and more extensive regulation will make these concerns disappear. He said:

“Crypto is a new thing that is developing quickly, it is essentially very similar to traditional investment vehicles. Therefore, I think there are many things we can borrow from the stock market, where the regulations have been tested for a long time.”

Finally, Zhdanov explained that currently, malicious entities such as hackers are more attracted to target crypto than banks due to security gaps. The executive noted that security is also a key to wider adoption of digital assets.