Changpeng Zhao (CZ) fuelled some FUD around Coinbase last night, before reversing his position after Brian Armstrong took apart his argument with supporting numbers. Nevertheless, it turns out that Coinbase owned 10% of all BTC in circulation as of September 30, which raises questions about the centralization of the ecosystem.
CZ challenges Coinbase on its reserves
Rumours are rife after the FTX empire exploded, and few players are spared. Yesterday, Changpeng Zhao (CZ), the CEO and founder of Binance, may have spoken a little too soon when he blatantly questioned Coinbase’s solvency in a since-deleted tweet:
Figure 1 – Deleted tweet from CZ about Coinbase
While Grayscale revealed that all 635,000 bitcoins in its various products were entrusted to Coinbase’s custody, CZ drew a parallel by claiming that four months earlier, the exchange had only 600,000 BTC. If true, this would be a serious matter for Coinbase, as it would mean that the platform would be completely insolvent.
However, the numbers were wrong, and Brian Armstrong claimed that his company actually owned 2 million BTC as of September 30, and that Coinbase’s status as a publicly traded company forced transparency:
If you see FUD out there – remember, our financials are public (we’re a public company) https://t.co/ayzN0zaqgT
– Brian Armstrong (@brian_armstrong) November 22, 2022
This echoes the ideas we had a fortnight ago regarding Coinbase, about a possible FTX scenario. During these volatile times, fear uncertainty and doubt (FUD) is particularly pronounced, and it can be easy to be convinced by random reasoning from all sides.
After Brian Armstrong’s clarification, CZ announced that it had deleted its tweet. We can however question the interest of sharing erroneous information in a hurry, only to make a mea culpa after verifying the sources :
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
A significant centralisation of the ecosystem
If Brian Armstrong’s words tend to reassure, they nevertheless raise other questions. Indeed, 2 million BTC are simply equivalent to more than 10% of the supply in circulation. If these assets are not really under the control of Coinbase, it is nevertheless worth asking whether it is healthy for a single player to centralise such a large part of the ecosystem.
The exchange is not an isolated case. Since yesterday, CoinMarketCap has been displaying the reserves of platforms that play the transparency card, and the case of Binance is particularly noteworthy as well:
Figure 2 – Binance reserves
According to the data, Binance is storing almost $68 billion. At the time of writing, the total cryptocurrency capitalization is valued at about $862 billion according to CoinGecko. This means that Binance alone centralises 7.8% of this capitalisation.
While centralised platforms offer a real convenience for easy access to the ecosystem, they should be seen as a gateway rather than a storage place. If not, stories like Celsius, Voyager Digital or FTX will inevitably be repeated in the future.
