The connection is that with bitcoin, there is absolutely no worry about where the coins are and who has what. Its in the ledger that anyone can see. The issue brought up with regards to Monero I found as very interesting. Since privacy works both ways, as the article said, there is no way to verify that the Monero people are buying the exchange actually has. Once again, with BTC, once its off the exchange, the coins are yours. And that takes a huge network to protect. Imagine you owning something precious to you. You can put it in your sock drawer and leave your front door unlocked... highly risky. You can live in a condo with restricted elevator access to each floor... a little more secure. You can live in a gated community, even better. You can put it in your safety deposit box at a bank, which is better still. But even then, the bank manager can easily confiscate it. You can get armed guards to protect your house, and now a robber probably would need a sophisticated plan to execute the theft. With each additional layer of protection, it takes more resources to get at it. Bitcoin is now at a level where no private individual, no corporation and no government can attack the network. Whatever level of energy that takes I am happy with. It dissuades anyone from wasting resources to attack it.
Its not a bad strategy, but I think the chances of it happening aren't the best. What would you consider the bottom of the fallout? If its announced that USDT has regulatory issues, will the price of BTC drop in minutes and you can scoop it up then, or will it takes days or weeks to work through? My suspicion is that if there is time to get out of USDT, it might just mean more buying pressure for BTC. Heck, if people run to Luna for that stablecoin, maybe Luna now needs to buy more BTC for their reserve interests. So the fall of USDT might in fact be bullish for bitcoin price. If the drop of USDT is sudden and 80B of value gone in seconds, this doesn't really affect the price of BTC in that moment. What would people do, sell their BTC in that moment, and for what? Sure at some exchanges you can deal with USD, but once again, why sell BTC just because USDT crashes? Maybe trading volume dries up, and that would be a bummer, but I see this the game of FOMC announcements. Bad news can easily make the price of the SP500 rally because everyone will now expect an accommodative FED. Perhaps once the messy situation of USDT shadiness is dealt, it could be a bullish sign for the crypto market without too much of a correction.
That is incorrect. Once the exchange has your coins they can do whatever they want with them and if they do fractional reserve banking, they most likely loaned it out to someone who is staking some other loans with it. Imagine you are the exchange and you have 1 billion bucks worth of all kind of crypto just sitting in deposits and you only need like 50 million of it for daily withdrawals. Now if you loan that 1 billion out for even just 5%, you made an extra 50 MM annually. And we both know the going loan rates are much higher. The problem is when lots of users want their crypto back and you can not call your loans back that quickly. That is called a run on the bank. I am surprised I have to explain this to a crypto fan. So any crypto community could do the same test, not just Monero.
What I just don't get if if there is fraxtional reserve banking with crypto how can they have so much value per coin since the same specific coin gets sold to numerous people while existing only once in reality. That should drive price down like a form of inflation, doesen't it?
I already used the phrase "not your keys, not your coins", and "bitcoin in cold storage" on the very first page of this thread, so I'm not sure how you are overlooking the fact that I'm fully aware of the difference between bitcoin on exchanges vs. in your hardware wallet. I do wonder what would happen if all of a sudden everyone tried to take their BTC off the exchange. Are the exchanges that stupid that they would have to start going into the market to buy up more coins since what they say is allocated to their customers isn't really there? I would welcome this.
If there is enough incoming money and interest, not necessary so. Also probably not every exchange and not 100% of capital loaned out. That would double the available coins, assuming all coins are on exchanges, what is not true. So let's just ballpark some numbers using Monero only. Let's say most Monero, like 80% are on exchanges. Let's say half of the exchanges fractional bank and they lend out 70% of their Monero. That is 0.7 x 0.5 x 0.8 => 26% extra Monero in the system, not a huge factor. (as compared to doubling the available number of coins) But that is an interesting question and who knows, the extra coins could be partially responsible for the crypto price increase stalling