Stop Worrying About Wrapped Bitcoin — Choose Coinbase’s cbBTC Instead

Concerns surrounding Wrapped Bitcoin (wBTC) and its custodian BitGo have sparked unnecessary panic among holders. However, these fears are largely overblown, and Coinbase Wrapped BTC (cbBTC) emerges as a safer alternative.

BitGo's Planned Changes Raise Alarms

In August, BitGo announced plans to change its custody structure, which fueled anxiety among wBTC holders. The announcement included a partnership with BiT Global, a Hong Kong-based crypto exchange, which is linked to the controversial figure Justin Sun, founder of the Tron platform. Sun has faced multiple allegations of misconduct, including fraud charges from U.S. regulators and attempts to misappropriate funds from Poloniex, a crypto exchange he acquired.

As a result, various decentralized finance (DeFi) platforms have sought to reduce their exposure to wBTC. For instance, on September 19, Sky (formerly Maker) voted to completely remove wBTC from its lending platform.

Spreading Fears

The panic intensified with rumors that Coinbase was issuing unbacked Bitcoin IOUs to BlackRock, a sponsor of crypto exchange-traded funds (ETFs). This led to further worries about the safety of cbBTC.

While concerns regarding the BiT Global partnership are legitimate, they do not warrant abandoning wBTC altogether. Although Sun has influence over BiT Global, he does not directly manage the exchange or wBTC itself. Moreover, the structure of wBTC's custody makes it difficult for any single entity to misappropriate the Bitcoin backing it.

BitGo employs a multisignature wallet for wBTC, requiring at least two authorized signers for any BTC transfer. BiT Global will be one signer, while the other two remain with BitGo’s affiliates in the U.S. and Singapore.

Calming the Storm

As of September 30, wBTC is backed 1:1 by roughly $10 billion worth of Bitcoin, and BitGo has committed to notifying wBTC holders 60 days in advance of any custody changes. The panic appears to be subsiding; on September 17, Sky reversed its decision to ditch wBTC after a risk consultancy expressed confidence in BitGo’s operations. By September 26, wBTC’s total value locked (TVL) on Aave, a DeFi lending platform, hit a record $2 billion.

Why Choose cbBTC?

For those prioritizing safe custody, Coinbase's cbBTC stands out. Its Bitcoin reserves are held by Coinbase Custody Trust, a New York-chartered digital currency custodian, subject to rigorous regulatory oversight. The reserves are stored in dedicated cold wallets, segregated from the exchange’s other assets, and regularly audited by New York’s Department of Financial Services (NYDFS). Additionally, cbBTC reserves are insured against cybersecurity threats, and Coinbase commits to reimbursing holders for any Bitcoin lost due to exploits.

While cbBTC isn’t the only alternative—21.co launched 21BTC in May, and Threshold is working on tBTC as a decentralized option—cbBTC offers unmatched investor protections and oversight. As of September 23, 21BTC added Chainlink proof-of-reserves, but it still lacks the same level of protection as cbBTC.

In conclusion, while decentralized Bitcoin wrappers may gain traction in the future, traditional investor safeguards remain crucial today, making cbBTC the preferred choice for those seeking security. Despite the recent turmoil, wBTC remains a strong player in the market.