Summary:
Paranoid Bitcoin investors suspect Coinbase may be issuing 'paper Bitcoin' to BlackRock.
Coinbase CEO Brian Armstrong addressed the rumors, emphasizing that all transactions are settled on-chain.
BlackRock's recent amendment requires Coinbase to release Bitcoin within 12 hours of notice.
Eric Balchunas of Bloomberg dismissed the 'paper Bitcoin' claims as conspiracy theories.
Bitcoin's price has surged over 140% in the past year, despite the ongoing speculations.
The Growing Concerns Among Bitcoin Investors
Paranoid Bitcoin investors are increasingly skeptical about the dealings between Coinbase, the largest crypto exchange in the U.S., and BlackRock, the world's largest asset manager. Despite the recent influx of capital into new spot Bitcoin ETFs that boosted BTC prices to an all-time high in March, many buyers are left confused as to why the price isn't even higher with all that new money flowing into the market.
The 'Paper Bitcoin' Theory
Critics claim that Coinbase, which acts as a custodian for most Bitcoin ETFs including BlackRock, isn't actually purchasing the Bitcoin requested by these funds. Instead, they're allegedly issuing “IOUs” or “paper” Bitcoin. This narrative has gained traction on social media, prompting Coinbase CEO Brian Armstrong to address the issue directly on X (formerly Twitter), stating, “Not sure what this is all about [to be honest]. All ETF mints and burns we process are ultimately settled on-chain.”
BlackRock's Recent Amendment
Shortly after Armstrong's comments, BlackRock filed an amendment requiring Coinbase to release Bitcoin to them within 12 hours when shares of its Bitcoin ETF are purchased. Critics seized upon this amendment as further evidence for their theories about Coinbase's operations.
Dismissing the Rumors
Eric Balchunas, an ETF analyst at Bloomberg, dismissed the claims of Coinbase issuing 'paper Bitcoin' as unfounded. He emphasized that there has never been a case where an ETF issuer didn't actually hold the underlying asset and that such actions would be illegal. He explained, “This isn’t like FTX... [BlackRock] is a serious company which has dozens of lawyers.”
The Trust Factor in ETFs
ETFs allow investors to gain exposure to assets like Bitcoin without holding them directly. When investors buy shares in BlackRock’s fund, BlackRock purchases an equivalent amount of Bitcoin and stores it with Coinbase. However, this setup requires a level of trust from investors, which is a point of concern for some skeptical Bitcoiners who prefer on-chain receipts.
Ongoing Speculations
Speculation about the legitimacy of Coinbase's Bitcoin holdings has been fueled by influential figures on social media. Despite the noise, Balchunas confirmed that BlackRock runs its own blockchain node and pulls BTC balances from their wallets to Coinbase nightly. He stated that while they can show balances to clients upon request, they wouldn't make them public to avoid spam and tracking issues.
Coinbase and BlackRock's Stance
Both Coinbase and BlackRock have dismissed the rumors circulating on social media as unfounded. BlackRock's head of digital assets, Robbie Mitchnick, described the recent filing as a normal update, asserting that nothing significant had changed. A Coinbase spokesperson reiterated that the unsubstantiated claims are merely rumors and that regulatory updates are part of normal operations.
Bitcoin's Performance
Despite the controversies, Bitcoin's price is up over 140% in the past year, largely due to the approval of ETFs. Balchunas noted, “I say you take that as a win... It could be way worse.”
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