Coinbase CEO Responds to Bitcoin IOU and cbBTC Controversy

Coinbase has responded to recent speculations suggesting that it was providing Bitcoin IOUs to BlackRock for its spot exchange-traded fund (ETF) offering. These rumors surfaced as Justin Sun, the founder of the TRON blockchain, criticized Coinbase’s wrapped Bitcoin product, cbBTC.

On September 14, crypto analyst Tyler Durden hinted that Coinbase might be issuing BTC IOUs to BlackRock, allowing them to borrow Bitcoin for shorting purposes without the need to prove a 1:1 ratio. Durden referenced Cryptoquant data, indicating that Coinbase was the primary buyer and seller during market peaks and troughs. He speculated that BlackRock could potentially manipulate Bitcoin’s price by either capping it or triggering a significant pullback.

Meanwhile, Justin Sun had previously stirred controversy over Coinbase’s cbBTC product, claiming it lacked Proof of Reserve, underwent no audits, and had the ability to freeze balances at any moment. Sun referred to cbBTC as “trust me” Bitcoin, insinuating that a US government subpoena could lead to the seizure of all Bitcoin held through it.

In response to these allegations, Coinbase CEO Brian Armstrong clarified how ETFs operate and addressed concerns surrounding cbBTC. Armstrong explained that ETF mints and burns typically settle on-chain within one business day, with institutional clients using trade financing and OTC options before finalizing trades on-chain. Additionally, Armstrong emphasized that Coinbase was not authorized to disclose institutional client addresses, including those of BlackRock.

Regarding cbBTC, Armstrong highlighted that users trust a centralized custodian to manage the underlying Bitcoin, a fact that Coinbase has never disputed. Other market experts, such as Nate Geraci, president of The ETF Store, refuted the IOU claims, affirming that ETFs fully own the assets they claim.

Bloomberg analyst Eric Balchunas pointed out the difficulty people face in accepting that actual market participants, rather than ETFs, are responsible for Bitcoin’s recent price fluctuations. Balchunas emphasized that ETFs and BlackRock have consistently supported Bitcoin’s price, countering claims that ETFs are to blame for market volatility.