Coinbase CEO Brian Armstrong has publicly denied allegations claiming that the crypto exchange sold ‘paper Bitcoin’ to BlackRock without proper backing.
The allegations surfaced on September 14 when Bitcoin OG Tyler Durden accused Coinbase of lacking transparency in its ETF custody and cbBTC offerings.
Allegations and previous claims
Durden, who made similar claims against Coinbase in May 2024, cited a scan of the blockchain public ledger, suggesting that Coinbase was issuing IOUs for BlackRock instead of actual Bitcoin. He went as far as to label Armstrong as ‘anti-Bitcoin.’ These claims were promptly countered by independent crypto market analyst Dave Weisberger, who dismissed them as baseless. Additionally, Bloomberg’s senior ETF analyst Eric Balchunas acknowledged the skepticism but defended ETFs and BlackRock, asserting that their actions had repeatedly stabilized Bitcoin’s price.
Baldilocks here.Not sure what this is all about TBH. All ETF mints and burns we process are ultimately settled onchain. Institutional clients have trade financing and OTC options before trades are settled onchain. This is the norm for all our institutional clients. All funds…
— Brian Armstrong (@brian_armstrong) September 14, 2024
Armstrong clarified that all ETF mints and burns processed by Coinbase were ultimately settled on-chain, adhering to established procedures. He emphasized that institutional clients can access trade financing and OTC options before the trades’ final on-chain settlement, typically within one business day through Coinbase’s prime vaults.
Armstrong also highlighted that Deloitte conducts annual audits of Coinbase, which are available to the public upon request. Despite Armstrong’s reassurances, some members of the crypto community remain skeptical. The CEO acknowledged that cbBTC relies on a centralized custodian to store the underlying Bitcoin but reiterated that Coinbase has never claimed otherwise.
Concerns over transparency
Despite Armstrong’s statements, concerns linger regarding Coinbase’s Bitcoin reserves, particularly the lack of proof of backing for cbBTC. Crypto educator and analyst Duo Nine voiced doubts about the absence of public proof of reserves, drawing parallels to the FTX collapse if too much paper Bitcoin is issued. He disagreed over Coinbase’s reliance on investor trust without concrete evidence of Bitcoin reserves.
Similarly, Justin Sun, founder of TRON, echoed these concerns, arguing that cbBTC lacks proof of reserve and proper audits. Sun warned that Coinbase’s current “trust me” approach could allow U.S. government intervention to seize Bitcoin holdings under a subpoena, raising alarms about the potential risks for investors. He criticized cbBTC as a representation of centralized control over Bitcoin, which goes against the decentralized ethos of the cryptocurrency community.
Calls for greater transparency
As the debate continues, some crypto enthusiasts have called for greater transparency from Coinbase to maintain trust within the crypto community. While some see these allegations as a tactic by competitors to gain market share, the overarching sentiment is that transparency remains crucial in the crypto space. Justin Sun’s firm is preparing to take over BitGo’s WBTC, which is poised to compete directly with Coinbase’s cbBTC, further intensifying the scrutiny over Coinbase’s practices.
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