It is possible for centralized exchanges to engage in fraudulent activities, such as "selling" Bitcoin that they do not actually possess. This is often referred to as "fractional reserve" or "phantom" Bitcoin trading, where exchanges engage in leveraged trading, rehypothecation, or other practices that allow them to inflate their Bitcoin reserves beyond what they actually hold.

However, reputable exchanges are typically audited on a regular basis to ensure that they hold the Bitcoin they claim to own. In general, it is important for users to research and carefully choose reputable exchanges, to store their Bitcoin in a secure offline wallet and to move Bitcoin off of exchanges as soon as possible.

It is also worth noting that decentralized exchanges, or DEXs, have emerged as an alternative to centralized exchanges, which can provide users with greater transparency and control over their funds. DEXs operate on a blockchain and are non-custodial, meaning users hold their own Bitcoin in their wallets, rather than on the exchange itself.