Ok so it’s Coinbase’s coins now. Yes there’s a plethora of issues that can happen here. Who is responsible if the coins are lost? And, more importantly, what if Coinbase has a boating accident? I guess you can get my point, it feels like either coinbase is becoming a state’s asset holder, or the state trusting them can lead to serious financial consequences.
The responsibility lies with the one who provides the custody service, which in this particular case is the already mentioned company. If we take into account that the same company (CEX) provides custody services for practically all BTC spot ETFs (US), then it is not surprising that the US government also uses them.
Of course, from our perspective, they are all doing it the wrong way, behaving with Bitcoin the same way they behave with fiat currencies - that's why CEX is just another type of bank for them. However, that CEX is one of the more serious ones on the market, and they say that only about 2% of cryptocurrencies are in hot wallets, while everything else is in cold wallets.