Coinbase holds more than 10 percent of all Bitcoins

Bitcoin itself is decentralized. However, a threatening centralization is emerging in terms of custody. More and more coins are ending up with Coinbase, which has already become the largest global Bitcoin treasury.

The large US exchange Coinbase reportedly holds 2,275,123 Bitcoin. That accounts for more than 10 percent of the total available 21 million Bitcoin that will ever exist.

Considering that currently, only about 19,750,000 Bitcoin exist—and of those, probably one to two million are permanently lost—Coinbase likely holds approximately 15 percent of all available Bitcoin.

This estimate comes from a report by TimechainIndex, a website that tracks Bitcoin holdings. Coinbase holds large amounts of Bitcoin not only as an exchange and converter but also similarly large amounts for other institutions through its Coinbase Custody service.

These other institutions include BlackRock, Grayscale, 21Shares, Invesco, Valkyrie, Wisdom Tree, Franklin Templeton—more or less all those who have launched a Bitcoin ETF in the USA—as well as companies like MicroStrategy, Tesla, SpaceX, numerous miners like Hut 8 or Marathon, and other exchanges like Revolut or Bitvavo. Thus, Coinbase is the largest Bitcoin treasury in the world, both for itself and on behalf of others.

I am not entirely sure how plausible all the figures provided by TimechainIndex are. Some of the entities mentioned might possibly store their Bitcoins on various platforms.

But even small to moderate inaccuracies would not change the slightest bit. Coinbase plays a disturbingly superior role in the ecosystem. As Sani from TimechainIndex tweets, “No one is prepared for the largest hack in history.” If someone hacks Coinbase, they could steal Bitcoins worth more than 100 billion dollars. It would practically be the end of Bitcoin.

However, such a hack is rather unlikely. Thanks to tough cryptography, there are effective methods to store Bitcoins extremely securely with manageable effort. Coinbase claims that it has not had a single incident in 12 years. They have „Zero Tolerance for errors,“ hire the best talents, and give them all the necessary tools and resources. They continuously invest in technology and processes to ensure and enhance security.

How exactly Coinbase stores the assets is, of course, secret or only vaguely known. The exchange only states, “More than just cold storage. Coinbase Storage combines physical security, consensus-based computation, and strict process controls.“ Presumably, the keys are divided, broken into multisigs, stored in various secure locations, and then also secured through some kind of proprietary blockchain.

The enormous amount of coins that Coinbase holds indicates that what the analyst Tuur Demeester predicted a few years ago has come to pass with Bitcoin: Just as in the age of the Reformation, large banks stored gold—such as the Amsterdam Wisselbank—and issued bonds and other papers backed by it, enabling the East Indian overseas trade, the primary purpose of Bitcoin today is to be stored securely in a vault and serve as a basis for other financial products, such as ETFs.

One can further analyze and contemplate how many more Bitcoins are withheld from the market. For instance, a relatively large portion of Bitcoins has been legally seized—in the USA, China, and other countries—and still awaits the completion of legal processes so that they can be sold. According to Bitcoin Treasuries, the USA holds 213,000 Bitcoins, China 190,000, the United Kingdom 61,000, and Ukraine 46,000 Bitcoin.

On the other hand, Bitcoins involved in criminal activities but not yet seized by law enforcement are often stuck in money laundering cycles; they are never or only trickled slowly moved. For example, the wallet of the Mt. Gox hacker still holds almost 80,000 Bitcoins, to name just one instance.

Furthermore, there are Bitcoins from failed or bankrupt exchanges like Mt. Gox, FTX, and others, which are in the possession of bankruptcy trustees and will only reach creditors through a very long process. Added to these „holders against their will“ are miners, who, according to Timechain Index, hold about one million Bitcoins, or BitGo, which holds 150,000 Bitcoins for the Wrapped Bitcoin Token (WBTC), and many more.

All in all, a significant portion of Bitcoins remains bound, while a relatively small part is actually in circulation and contributes to price formation. This ratio of held to circulating Bitcoins is likely the most crucial factor for price formation nowadays, well before the halving or individual hypes.