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Could be "ledger entries" in the crypto exchange's database with no real world corresponding BTC on the actual Blockchain.

Imagine you log into an exchange, deposit another crypto like LTC, exchange it for "BTC" and never actually withdraw it. how can you be sure that there is actual BTC behind your account?

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Exactly - done in order to fake volume - so it looks like your exchange is doing a lot more business than it really is. Also to manipulate the bitcoin price on your exchange, although it would be difficult to make significant moves due to arbitrage.

This is correct

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