BiT Global Sues Coinbase for Unfair Practices
R Tamara de Silva
Summary: On December 13, 2024, BiT Global Digital Limited filed a lawsuit for over $1 billion against Coinbase Global, Inc., alleging anticompetitive practices and deceptive behavior surrounding the delisting of wrapped Bitcoin (wBTC) and the promotion of Coinbase’s competing product, cbBTC. This legal action was filed in federal court, with BiT Global seeking injunctive relief to halt Coinbase's practices and significant damages to compensate for lost revenue and harm to its reputation.
BiT Global Digital Limited, which manages and operates wBTC, has filed a lawsuit against Coinbase, alleging anticompetitive behavior, deceptive practices, and trade libel. At the heart of the dispute is Coinbase’s decision to delist wBTC shortly after launching its competing product, cbBTC (Coinbase’s version of wrapped Bitcoin).
Background
Wrapped Bitcoin (wBTC) has emerged as a transformative bridge between the world’s largest cryptocurrency, Bitcoin, and the growing decentralized finance (DeFi) ecosystem. Recently, however, wBTC has become the center of a legal battle between BGlobal Digital Limited (“BiT Global”) and the centralized platform Coinbase Global, Inc. (“Coinbase”). This lawsuit underscores significant challenges in maintaining fair competition and fostering innovation within the cryptocurrency market.
Bitcoin was designed as a decentralized digital currency and a store of value. However, its blockchain lacks the capabilities of modern networks like Ethereum, which enable the use of smart contracts and decentralized applications (DApps). This is where wrapped Bitcoin (wBTC) comes into play.
wBTC allows Bitcoin holders to extend the functionality of their Bitcoin without selling it. By wrapping Bitcoin, users can integrate their Bitcoin into Ethereum-based platforms for trading, lending, borrowing, and staking in DeFi applications. Custodians—trusted third parties—securely hold the Bitcoin backing each wBTC token. For every wBTC in circulation, there is a corresponding Bitcoin held in reserve, ensuring a 1:1 peg between the two.
This process is straightforward. A user deposits Bitcoin with a custodian, who issues an equivalent amount of wBTC tokens on Ethereum. These tokens represent the user’s Bitcoin and can be used on DeFi platforms. Conversely, when a user wants to retrieve their original Bitcoin, they send the wBTC tokens back to the custodian. The tokens are destroyed (or "burned"), and the Bitcoin is returned.
wBTC provides a bridge between Bitcoin’s liquidity and Ethereum’s flexibility, enabling Bitcoin holders to participate in the dynamic DeFi space without parting with their Bitcoin.
The Lawsuit
In November 2024, Coinbase announced it would delist wBTC, claiming it no longer met the exchange’s listing standards. BiT Global argues that this rationale was disingenuous and designed to harm wBTC’s reputation while promoting cbBTC. Coinbase introduced cbBTC in September 2024 and soon after began encouraging users to switch, which BiT Global alleges was part of a calculated effort to monopolize the wrapped Bitcoin market.
BiT Global further highlights Coinbase’s inconsistent listing standards. While delisting wBTC, Coinbase simultaneously added so-called "meme coins" such as PEPE and Dogwifhat, which lack inherent value. BiT Global contends that this inconsistency demonstrates that the delisting of wBTC was not based on genuine listing standards but rather an attempt to undermine competition.
The impact of Coinbase’s actions has been significant. Following the delisting announcement, the circulation of wBTC dropped by over 5% within weeks, reflecting a loss of confidence in the token. BiT Global alleges that this decline directly resulted from Coinbase’s anticompetitive practices and deceptive conduct.
The legal claims:
1. Antitrust Violations: BiT Global alleges that Coinbase leveraged its dominant market position to stifle competition in the wrapped Bitcoin market. By delisting wBTC and promoting cbBTC, Coinbase sought to monopolize the market unfairly.
2. False Advertising (Lanham Act): BiT Global asserts that Coinbase’s public statements about wBTC failing listing standards were false and misleading, designed to erode confidence in wBTC while directing users toward cbBTC.
3. Unfair Competition (California Law): The lawsuit claims that Coinbase’s actions violated California’s Unfair Competition Law by engaging in fraudulent and unfair practices that harmed both competition and consumers.
4. Interference with Business Relationships: BiT Global alleges that Coinbase disrupted its economic relationships with merchants and users of wBTC, leading to reduced circulation and revenue.
5. Trade Libel: By making public statements implying that wBTC was unreliable or non-compliant, Coinbase allegedly damaged BiT Global’s reputation and market position.
The lawsuit seeks injunctive relief to stop Coinbase’s actions, significant damages to compensate for lost revenue and market share, and measures to ensure fair competition going forward.
Concerns Over Custodianship
Adding complexity to the issue, Justin Sun’s involvement in wBTC’s custodial operations has raised additional concerns. Sun, a well-known figure in cryptocurrency, has faced criticism for controversial practices in the past and is often regarded as a less reliable custodian compared to BitGo. BitGo, a U.S.-based entity, held custody of Bitcoin backing wBTC and touts rigorous security protocols and its regulatory and compliance background. These factors have bolstered confidence in wBTC under BitGo’s management.
Entrusting assets to unregulated crypto custodians is a gamble, often ending in costly breaches or loss of trust. BitGo is regulated in multiple jurisdictions and offers safeguards such as segregated accounts to ensure funds are never mixed or used for other purposes, protection against bankruptcy to keep client assets safe if the custodian faces financial instability, insurance, and cold storage to store keys offline and away from malicious actors. Additionally, BitGo employs advanced security measures such as multi-signature cold wallets, key sharding, and offline signing, along with redundant human review processes by trust officers to ensure the integrity of transactions. These safeguards have bolstered confidence in wBTC under BitGo’s management.
Critics have also raised concerns about Coinbase’s competing product, cbBTC. BitGo CEO Mike Belshe argued that cbBTC’s rise could compromise the principles of decentralized finance (DeFi). He emphasized that if the DeFi community accepts Coinbase—a centralized entity often likened to a “central bank”—as the ultimate steward of wrapped Bitcoin, it could signal a significant setback for DeFi’s foundational ethos. According to Belshe, BitGo’s custody model, which prioritizes distributed key storage and transparent standards, is far superior to what Coinbase has proposed or implemented.
Further complicating the matter, U.S. customers do not currently have access to BiT Global, limiting their ability to engage directly with the company and its offerings. This restriction amplifies the consequences of Coinbase's actions in the U.S. market, as users are left with fewer alternatives for wrapped Bitcoin solutions.
Broader Implications
As the largest U.S.-based cryptocurrency exchange, Coinbase has immense influence over token visibility and liquidity. But Coinbase is a centralized exchange. This lawsuit alleges that the largest centralized US exchange used its market power to harm a decentralized product so it could peddle its own centralized solution. For an industry built on principles of decentralization, actions perceived as anticompetitive by centralized exchanges are more than just ironic.
What’s Next?
BiT Global seeks to prevent Coinbase from delisting wBTC and aims to recover damages for lost revenue and reputational harm. The case has the potential to establish precedents for how centralized exchanges interact with competing products and how fairness is maintained in the cryptocurrency ecosystem.
For questions about litigation in the financial markets or the digital asset space, contact the De Silva Law Offices for experienced legal guidance.