Agreed. I got about half way through the article before realizing the author does not understand how an exchange works.
1) enough coin to satisfy coin withdrawals, even in the middle of a panic run
2) enough fiat to satisfy fiat withdrawals, even in the middle of a panic run
I think maybe that's what the author meant, not sure. But if the exchanges fail to show their customers' assets, they will reinforce any panic feedback loop that might be happening sometime in the future.
"The most obvious way, in my view, that Bitcoin mania will turn into Bitcoin panic is when a Bitcoin depositor goes to sell their BTC for dollars – and there are no dollars available to satisfy that sell request."
coinbase has to have the dollars to let me withdraw those dollars from coinbase to my bank account. They may not have enough on hand.
BTC: $160B market cap, ~$5B traded/day
INTC: $200B market cap, ~$1B traded/day
So if there was panic selling of INTC, the stock would presumably dive deeper and lower than a panic sale of BTC...
But this is only a problem if coinbase or whoever is acting as a fractional reserve system.
As far as I know, every single dollar and Bitcoin that coinbase "says" you have is actually in an account somewhere, dollar for dollar and Bitcoin for Bitcoin.
If this is NOT true, and coinbase is a fractional reserve system, that would be a huge scandal.
According to the Bitcoin protocol, only a maximum of 21m BTC can exist. And that they are created via mining in a predictable schedule.
Respectfully, I think you need to revisit Bitcoin fundamentals.
At least, that's my view. We'll see if there's a flight to liquidity when the bubble in Bitcoin's price finally pops.
That's a reasonable position to have. I think it is overpriced too.
It still doesn't make it a 'fractional reserve system'. It instead means that the price is to high.
These are different things, that have nothing to do with each other.