Executives at Coinbase recently addressed growing scrutiny surrounding Bitcoin exchange-traded funds (ETFs), firmly rejecting claims that these funds are backed by so-called “paper Bitcoin” rather than real assets.

During a company-wide Ask Me Anything (AMA) call, leadership emphasized the strength, transparency, and security of their custody systems, reinforcing Coinbase’s dominant institutional role.

CEO Brian Armstrong revealed that Coinbase holds over 80% of the custody market share for U.S.-listed Bitcoin ETFs, positioning the company as the leading custodian for institutional crypto investments.

He described this dominance as a competitive advantage built on trust, advanced infrastructure, and institutional reliability, rather than a systemic risk.

Armstrong acknowledged concentration concerns but noted that large ETFs typically diversify custodians over time, which he considers a natural and healthy market evolution.

Security remains central to Coinbase’s custody operations.

Armstrong explained that the company relies on advanced cold storage systems, which are subjected to regular penetration testing and security audits.

He highlighted that Coinbase holds patents related to its custody technology and employs specialized cryptographers to protect assets.

Additionally, institutional clients and government entities conduct independent audits, reinforcing confidence in the platform’s safeguards.

Addressing widespread social media speculation questioning whether Bitcoin ETFs are fully backed, Armstrong clarified that spot Bitcoin ETFs are legally required to be fully backed by actual Bitcoin holdings.

Coinbase CFO Alesia Haas added that while some critics call for public proof of reserves, Coinbase does not disclose wallet addresses publicly due to security and confidentiality obligations.

However, she emphasized that ETF issuers and custody clients can independently verify their holdings directly on the blockchain.

Haas further explained that Coinbase’s custody services undergo separate third-party audits, including SOC 1 and SOC 2 certifications.

These audits confirm that client assets are properly segregated, reconciled with blockchain records, and securely managed.

She noted that while Coinbase cannot disclose addresses on behalf of clients, it may develop tools enabling clients to voluntarily share proof-of-reserve information if desired.

The executives also addressed regulatory developments, particularly concerning proposed U.S. crypto legislation known as the CLARITY Act.

Armstrong denied claims that Coinbase had withdrawn support, clarifying that the company only objected to specific draft provisions it considered unworkable.

He noted that Coinbase has invested over $100 million advocating for regulatory clarity, stressing that clear legislation would provide long-term certainty for the crypto industry beyond changing regulatory leadership.

Armstrong expressed confidence that crypto market structure legislation will eventually pass, emphasizing that clear rules would strengthen investor confidence, support innovation, and ensure the continued growth of institutional crypto adoption.

He concluded that while Coinbase will continue operating under existing regulations, achieving formal legislative clarity remains a critical priority for the entire industry.