Key Takeaways
- Coinbase CEO brushes rumors about selling paper BTC without showing on-chain proof.
- Social media users called out Coinbase for lack of transparency over its BlackRock ETF dealings.
- Justin Sun also called out Coinbase for its wrapped BTC product.
Recently, reports emerged that BlackRock, the world’s largest asset manager, was allegedly using off-chain transactions to gobble up massive amounts of Bitcoin through Coinbase.
As the rumors swirled over a purported secret deal, Coinbase CEO Brian Armstrong stepped forward to address the allegations and clear the air.
Coinbase CEO Assures Everything Is On-Chain
Armstrong vehemently denied rumors about a secret deal with BlackRock.
The Coinbase CEO explained that while institutional clients like BlackRock may use Coinbase’s trade financing and over-the-counter (OTC) options before trades are settled on the blockchain, all funds are ultimately settled in the company’s Prime vaults on-chain within one business day.
Armstrong added that this method is the norm for all institutional clients.
“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 what it looks like if you want a bunch of institutional money to flow into Bitcoin,” the Coinbase CEO expressed.
However, Armstrong’s reassurance did little to quell the skepticism, especially the part about being a Deloitte-audited company.
Many pointed out that Coinbase’s decision to handle institutional transactions off-chain before later settling them on the blockchain, even if just for a day, was precisely the kind of arrangement that was sparking concern in the first place.
Backlash on Lack of Transparency
Social media users seized on the ostensible lack of transparency surrounding such transactions, fearing that investors like BlackRock could potentially exploit it to manipulate markets, such as short selling.
For instance, one influential crypto voice, known by the pseudonym Tyler Durden, highlighted the potential risks, noting that BlackRock could borrow Bitcoin from Coinbase, only to use it to short the market—all without the public’s knowledge, as the settlement would be conducted off-chain.
It’s worth noting that Tyler Durden had deleted the post accusing Armstrong and Coinbase of secret deals with BlackRock at the time of writing. However, a similar post from May remains.
Bitcoin Proponents Accused Coinbase of Selling Paper BTC
Beyond the concerns surrounding Coinbase’s relationship with BlackRock, the exchange faced further criticism from some corners of the crypto community, with detractors accusing Coinbase of essentially “selling paper Bitcoin” due to the lack of transparency in its operations.
Tron co-founder Justin Sun, for one, raised red flags about Coinbase’s newly launched wrapped Bitcoin product, cbBTC, suggesting that a lack of transparency made it “one U.S. subpoena away from freezing assets.”
As controversy swirled around cbBTC, Armstrong shared that a centralized custodian backed the product.
However, he sidestepped demands for more transparency, specifically declining to explain why the exchange would not permit on-chain verification of the Bitcoin backing its wrapped BTC product.
Many Bitcoin supporters panned Armstrong’s response as less than satisfying, with some arguing that his comments failed to adequately address the pressing issue of on-chain verification.
Prashant Jha is a seasoned crypto journalist based in Delhi, India, with a Bachelor’s Degree in Computer Science Engineering. Passionate about the evolving world of blockchain and cryptocurrencies, he has been a dedicated voice in the industry since 2018. Prashant’s expertise lies in regulatory reporting, where he unravels complex legal and financial developments with clarity and precision. Before joining CCN in 2024, he honed his craft at Cointelegraph, establishing himself as a trusted name in crypto journalism.
His coverage spans major industry events, including the high-profile collapses of FTX, Three Arrows Capital (3AC), and LUNA, offering readers insightful analyses of their regulatory and market implications. Prashant’s technical background enables him to bridge the gap between intricate blockchain technology and its real-world applications, making his work accessible to novices and experts.
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