Coinbase recently addressed some rumors about issuing Bitcoin IOUs to BlackRock for its spot exchange-traded fund (ETF). These rumors started after Justin Sun, the founder of TRON, criticized Coinbase’s wrapped Bitcoin product, known as cbBTC.
On September 14, crypto analyst Tyler Durden suggested that Coinbase was providing these IOUs to BlackRock. If true, this would allow BlackRock to borrow Bitcoin for shorting without needing to keep a 1:1 ratio. Durden pointed to Cryptoquant data, which showed that Coinbase was the largest buyer and seller during market highs and lows. He speculated that BlackRock might use this position to manipulate Bitcoin’s price.
Meanwhile, Justin Sun added fuel to the fire. He claimed that cbBTC lacks Proof of Reserve, hasn’t been audited, and could have its balances frozen at any time. He described cbBTC as “trust me” Bitcoin, implying that a U.S. government subpoena could lead to the seizure of all Bitcoin held through it.
“cbbtc=central bank btc. There’s no more ridiculous combination than central banks and Bitcoin. I can’t imagine this day was ever envisioned by Satoshi Nakamoto,” Sun remarked.
In response, Coinbase CEO Brian Armstrong clarified how ETFs work and addressed concerns about cbBTC. He explained that the minting and burning of ETFs usually settle on-chain within one business day. He also mentioned that institutional clients often use trade financing and OTC options before settling trades on-chain.
Armstrong emphasized that Coinbase cannot disclose the addresses of its institutional clients, including BlackRock. “If you want audits, Deloitte audits us annually; we’re a public company. I doubt our institutional clients want their addresses exposed, and it’s not our place to share that information. This is how you attract institutional money into Bitcoin,” he said.
Regarding cbBTC, Armstrong noted that users trust a centralized custodian to manage the underlying Bitcoin. He stated that Coinbase has never claimed otherwise.
Other market experts also dismissed the IOU claims. Nate Geraci, president of The ETF Store, assured that ETFs fully own the assets they claim. “Whatever Coinbase is doing, rest assured that ETFs 100% own the underlying BTC. It’s real, and it’s spectacular. Period. Anyone spreading these rumors doesn’t understand how ETFs work,” Geraci stated.
Bloomberg analyst Eric Balchunas pointed out that many find it hard to accept that actual market participants, not ETFs, are behind Bitcoin’s recent price changes. “I get why these theories exist. It’s just too unthinkable that the HODLers could be the sellers. But they are. The call is coming from inside the house. All the ETFs and BlackRock have done is repeatedly save BTC’s price from dropping,” Balchunas explained.