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Civic’s Vinny Lingham Suspects Fractional Reserve Lending on Exchanges


cryptovest.com 11 December 2018 11:10, UTC
Reading time: ~2 m

Vinny Lingham, an early Bitcoin proponent and founder of Civic (CVC), has noted the practice of injecting liquidity on exchanges through a form of fractional reserve lending. Exchanges may not hold enough cash or cryptocurrency to match the volumes due to the effect of lending.


This observation follows previous reports that Japanese exchanges offered a form of lending exceeding the deposits. While some platforms are known for faking volumes and are excluded from reporting, having a fractional reserve option may further encourage activity.

Lingham is worried that traders may end up losing the coins due to not owning the private keys. Exchanges are vulnerable to hacks, but there are suspicions some of the losses may be the result of insider plans.

Bitfinex is one of the exchanges that offer lending for BTC, thus increasing the number of coins in circulation on the market. It has also been accused of concerted efforts to push up the price of Bitcoin (BTC), lately showing an attempt to place orders and keep BTC above $3,500.


The potential for market manipulation with no oversight is stronger on some exchanges, while others see fair trading. However, the crypto space uses bots for price setting, and a price movement on one platform may seep into other markets.

Manipulation is also used as the chief argument against the inflow of institutional finance in the crypto space. The creation of a Bitcoin exchange-traded fund has been delayed multiple times since launching an investment vehicle based on a heavily manipulated asset may be problematic.

While Bitcoin aims to be sound money, its usage can include a form of fractional reserve lending, the same approach used by fiat-carrying banks.

Exchange wallets may be easy to scrutinize, but when it comes to trading, it is unknown which accounts may have used crypto-based lending, thus increasing the supply of available BTC for trades.

BTC prices have dropped below $3,000, but they remain above $3,500 on Bitfinex, boosted by the USDT market. On fiat-to-crypto exchanges like Kraken, the BTC/EUR pair traded lower, at $3,410.

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