Key Takeaways:

Rumors of Coinbase issuing Bitcoin IOUs to BlackRock for market manipulation were debunked after CEO Brian Armstrong clarified the transparency of the ETF process.
Concerns arose after a criticism by Justin Sun of Coinbase’s new wrapped Bitcoin product (cbBTC), citing a lack of Proof of Reserves.
Bloomberg analysts dismissed the allegations, highlighting misunderstandings about ETF operations and urging transparency from issuers like BlackRock.

Over the weekend, rumors circulated that Coinbase was issuing Bitcoin IOUs to BlackRock, enabling price manipulation, but these were quickly debunked.

Crypto analyst Tyler Durden claimed that Coinbase was allowing BlackRock, which manages the largest spot Bitcoin ETF, to borrow Bitcoin without collateral, potentially leading to market manipulation.

His concerns stemmed from Tron founder Justin Sun’s criticism of Coinbase’s new wrapped Bitcoin product (cbBTC) for lacking transparency, particularly in Proof of Reserves.

#cbbtc lacks Proof of Reserve, no audits, and can freeze anyone's balance anytime. Essentially, it’s just 'trust me.' Any U.S. government subpoena could seize all your BTC. There’s no better representation of central bank Bitcoin than this. It’s a dark day for BTC.
— H.E. Justin Sun🌞(hiring) (@justinsuntron) September 12, 2024

Coinbase CEO Brian Armstrong refuted the claims, explaining that the ETF operates transparently, with coins minted and burned on-chain, and institutional clients using financing options.

Following this, Durden deleted his tweet.

Baldilocks here.

Not sure what this is all about TBH. All ETF mints and burns we process are ultimately settled onchain. Institutional clients have trade financing and OTC options before trades are settled onchain. This is the norm for all our institutional clients. All funds…
— Brian Armstrong (@brian_armstrong) September 14, 2024

Bloomberg ETF analyst James Seyffart dismissed the allegations as misunderstandings about ETF operations, urging more transparency from issuers like BlackRock.

Bitwise, a crypto-native ETF issuer, has already embraced transparent practices.

Eric Balchunas, a senior ETF analyst at Bloomberg, criticized the crypto community’s tendency to blame ETFs for market downturns, emphasizing that BlackRock would respond seriously to any mishandling of assets.