Bloomberg senior ETF analyst Eric Balchunas refuted recent allegations against Coinbase that claimed the exchange was not using BlackRock’s funds to buy actual Bitcoins (BTC).

The rumors surfaced on social media on Sept. 16 and alleged that Coinbase was issuing letters of debt instead of backing IBIT ETF with Bitcoin. The speculators further alleged that the exchange was using the asset manger’s funds to manipulate Bitcoin’s price.

However, Balchunas dismissed the claims as absurd, saying:

“BlackRock isn’t playing around folks. They would flip out if $COIN was screwing around w their BTC.”

He further stated that doing such a thing would “violate” regulations.

Coinbase CEO responds

Coinbase CEO Brian Armstrong also addressed the allegations by clarifying that all mints and burns related to the ETFs in the firm’s custody are “ultimately settled on-chain.”

He added that institutional clients have off-chain options before trades are settled on-chain, such as over-the-counter (OTC) desk trading. In this case, all funds are settled in Coinbase Prime vaults within one business day.

He added:

“This is what it looks like if you want a bunch of institutional money to flow into Bitcoin.”

Armstrong did not disclose further details, saying that the firm’s institutional clients would not want their addresses revealed and hit with random small-amount transactions.

ETF holding back sell pressure

Balchunas shared two reasons that have caused this theory to surface. The first one is that Bitcoin investors are looking for a reason behind the selling pressure that has kept BTC in a downtrend trend since March.

The analyst said:

“Instead of looking in [the] mirror, it must be the ETFs but all they’ve done is saved your bags from sliding into oblivion multiple times.”

The second reason is the common skepticism that Bitcoin investors hold toward governments and institutions. Balchunas explained that gold ETFs faced similar speculation, with “gold bugs” calling SPDR Gold Shares (GLD) “paper gold.”

He added:

“This is like deja vu all over again.”

Controversy expands to cbBTC

The new synthetic Bitcoin product by Coinbase, cbBTC, was also targeted by the community’s scrutiny recently, as its market cap quickly surpassed $100 million on its launch day.

Tron founder Justin Sun alleged that cbBTC lacks proof of reserves and that the US government would be able to freeze users’ balances whenever they like. Sun stated:

“Essentially, it’s just ‘trust me.’ Any USgovernment subpoena could seize all your BTC. There’s no better representation of central bank Bitcoin than this. It’s a dark day for BTC.”

Other critics within the community echoed the concerns, calling cbBTC a “paper” version of Bitcoin. 

Armstrong replied to these allegations, saying that users must, indeed, trust a centralized custodian to store the BTC backing Coinbase’s product.

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