Coinbase CEO refutes claims of selling ‘paper Bitcoin’ to BlackRock

• Coinbase defended its ETF custody and new cbBTC offering. 
• However, the community sought clarity on its cbBTC BTC backing. 

Coinbase hit headlines on 15th September amid intense scrutiny and allegations of a lack of transparency in its Bitcoin [BTC] reserves.

The community claims spiked after the world’s largest crypto custody firm launched its wrapped BTC, cbBTC. This BTC derivative is useful as collateral in the DeFi space. 

That’s not all, though. Some community members claimed that Coinbase ‘sold paper BTC’ to BlackRock without proper 1:1 backing.

In short, members sought to know Coinbase’s BTC reserves for its cbBTC and BlackRock ETF. 

Coinbase defends itself

In a rejoinder, Coinbase founder Brian Armstrong defended the firm on the two claims. Regarding the BlackRock allegations, he stated that Deloitte audits the firm annually, and it can’t share clients’ wallet addresses. 

“If you want audits, Deloitte audits us annually; we’re a public company. I doubt our institutional clients want people dusting all their addresses, and it’s not our place to share for them.” 

This is not the first time this allegation has been made. In May, the same claim was made against Coinbase and BlackRock. 

However, ETF experts like Bloomberg’s ETF analyst Eric Balchunas discredited the May allegations. They noted that the lack of transparency was due to a lack of ‘in-kind’ redemptions in the ETF design. 

Balchunas also slammed the latest allegations. It is worth noting that Arkham tracks most ETF issuers and their holdings, which can be verified. 

CbBTC’s reserves questions remain

That said, Armstrong’s statement about cbBTC left more questions than answers. He said, 

“As for cbBTC yes you’re trusting a centralized custodian to store the underlying BTC – we’ve never claimed otherwise.”

Some community members felt that even if the firm is a centralized custodian, it should allow people to verify their BTC backing for cbBTC. 

Transparency is part of the blockchain ethos. However, Armstrong’s statement on cbBTC was deemed less satisfactory. One of the market watchers stated, 

“They will not provide any proof of reserves for the BTC they *claim* they have, nor any proof of backing for their new paper BTC called cbBTC. If they print too much paper BTC they will go the FTX route.” 

Coinbase’s cbBTC will compete with BitGo’s WBTC, which is set to transfer custody operations to Justin Sun’s firm. Some of the allegations could be construed as a fight for market share. 

However, it remains to be seen whether Coinbase will disclose its cbBTC’s backing.