That’s nonsense. Only miners can create new Bitcoin. What Coinbase could do is to issue a financial derivative backed by Bitcoin e.g. a “Coinbase Penny” representing a 1/1000th of Bitcoins. And then could go on issue more of those pennies than actually backed by Bitcoins. But it wouldn’t be cryptocurrency if it wouldn’t run on a blockchain. Of course, the “Coinbase Penny” could collapse if we people stopped trusting Coinbase. Bitcoin wouldn’t notice like the gold price does not care whether a single US dollar is still backed by 24.057 grams of silver like it originally did.
It would work just fine unless there's a run on it. So long as HODLers HODL, nobody would ever notice. That's the premise of the whole proof of keys business. (https://www.proofofkeys.com/)
