​Coinbase CEO reports the platform holds 2 million BTC

What’s new? The CEO of the cryptocurrency exchange Coinbase Brian Armstrong has published information about user assets stored on the platform. According to his Twitter post, Coinbase holds 2 million bitcoins ($39,9 billion as of the reporting date, September 30, 2022). Notably, the publication was preceded by a statement from Binance CEO Changpeng Zhao, in which he probably hinted at Coinbase’s insufficient amount of reserves.

We hold ~2M BTC. ~$39.9B worth as of 9/30 (see our 10Q) pic.twitter.com/TFINAgOSeZ — Brian Armstrong (@brian_armstrong) November 22, 2022

What other assets does the exchange hold? In addition to 2 million bitcoins, which make up 42% of all assets, Coinbase also holds $24,1 billion worth of Ethereum (25,3%) and other coins and tokens, which make up 31,1% of user portfolios.

In a comment to the tweet, Brian Armstrong urges everyone to unite to build the industry responsibly in the future. He also warns users to be wary of false information.

The head of Binance provided a link to a statement from Coinbase Custody CEO Aaron Schnarch on November 21 that the service owns 635 000 BTC in the bitcoin trust of investment firm Grayscale (GBTC). Zhao also attached a link to a news report from 4 months ago noting that Coinbase’s BTC reserves were less than 600 000 coins. He added that he was “just stating “news reports,” not making any claims.” Shortly after Armstrong’s publication, Binance CEO deleted his post and called for working together to make the industry more transparent.

Brian Armstrong just told me the numbers in the articles are wrong. Deleted the previous tweet. Let’s work together to improve transparency in the industry. — CZ 🔶 Binance (@cz_binance) November 22, 2022

Meanwhile, Grayscale Investments previously refused to provide proof of reserves, citing “security concerns.” However, Coinbase Custody published this information shortly thereafter.

Grit Capital CEO Genevieve Roch-Decter noted that Coinbase’s bonds are trading 50% below par value and yielding 16%. According to Decter, such a high figure indicates that investors are concerned about the company’s ability to pay interest.

She also cited trader Jim Chanos, who noted that the exchange requires high trading volumes to generate commissions to cover high operational costs. However, in a bear market, customers’ assets lose value, and declining interest in cryptocurrencies leads to lower trading volumes. Decter added that already by the end of the second quarter of this year, Coinbase’s net revenue is down about 60% compared to the same period in 2021.

This dynamic was already playing out by the end of Q2 this year.Net revenue is down about 60% year-over-year and net losses are growing. pic.twitter.com/T2puP31iB7 — Genevieve Roch-Decter, CFA (@GRDecter) November 22, 2022

Earlier, Bank of America criticized crypto exchanges’ proof of reserves reports. Experts noted that many exchanges have already reported or plan to report their assets through proof of reserves using Merkle trees. However, according to such a model, exchanges falsify assets, for example, to borrow assets just before the publication of reports.

Ben Zhou, CEO of cryptocurrency exchange Bybit, holds a similar opinion. He stated that it is not enough for exchanges to publish snapshots of reserves, as there are liabilities on the balance and other parameters that are important to consider. Simply publishing wallets does not show whose money it is — borrowed or own.