On-chain analysis: Coinbase Custody keeps 635K BTCs belonging to GBTC


An on-chain analysis has revealed that Coinbase Custody holds 635,235 Bitcoin units worth approximately $10.2 billion, most likely belonging to the Grayscale Bitcoin Trust (GBTC).

OXT researcher Ergo performed the analysis in two rounds. The first round revealed 432 addresses reserving 317,705 BTC linked to GBTC’s custody. The research team then scanned the ecosystem for the second round to find the remaining GBTC-linked addresses, which share similar profiles to the ones found in the first round.

GBTC announced last week that the company would not make its wallet information and proof of reserves available to the public. The statement came after several crypto exchanges released proof-of-reserve audits to reassure worried investors following the collapse of FTX.

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All of GBTC’s digital assets are kept in Coinbase Custody, each one of them as a “separate legal entity.” According to GBTC’s website, the custodian is qualified under New York banking laws.

The website also explains that client assets are held in “cold storage,” meaning they are protected from hackers because the storage is not connected to the internet.

“Due to security concerns, we do not make such on-chain wallet information and confirmation data publicly available through a cryptographic Proof-of-Reserve, or other advanced cryptographic accounting procedure,” GBTC said.

The company addressed investors’ concerns via its Twitter account, acknowledging that its refusal to disclose said information would be a “disappointment to some.”

GBTC argued that the panic due to the external situation should not make the company “circumvent complex security arrangements” that had been protecting customers’ assets for years.

Ergo explained that GBTC’s refusal to disclose its on-chain addresses to the public led to community efforts to bring transparency to the company’s business activities.

According to Ergo, analysts identified addresses and balances that were likely owned by the holding company using blockchain forensics and publicly available information.

The OXT researcher warned about false positives and negatives in the analysis. Nevertheless, Ergo said its result was “almost identical” to GBTC’s self-reports.

Ergo added that it did not understand why GBTC had refused to disclose its on-chain information, especially since Coinbase Custody’s policy does not forbid address disclosure.

Last week, GBTC recorded an 82 percent value loss in its assets for the last 12 months. Within the same period, BTC was down 72 percent in the open market, displaying a disparity between the trust’s holding and the open market price for a trust share.

Bankruptcy risks

GBTC operates under the Digital Currency Group (DCG), which oversees the troubled Genesis Global Trading.

Genesis was under scrutiny last week after its halted redemptions and new loan originations. Investors were wary that Genesis would face a similar experience as FTX, a renowned crypto exchange that announced bankruptcy due to a bank-run situation. According to Genesis’ website, the lender currently owes $2.8 billion to a number of investors.

Investors at GBTC feared that Genesis’ financial situation would spread to its sister company. However, a report released by wealth management company Bernstein said that Genesis would have no claim on GBTC’s assets even if it went bankrupt.

Bernstein also argued that DCG would prefer to keep GBTC than Genesis as the holding company had generated more revenues for them. From service fees, GBTC generates approximately $300 million per year.

Currently, GBTC trades at close to a 50 percent discount on the price of the underlying BTC. GBTC investors can only exit after a six-month lock-in period.