Coinbase Sells $2 Billion of Debt Via Junk Bonds

Neither the author, Tim Fries, nor this website, The Tokenist, provide financial advice. Please consult our website policy prior to making financial decisions.

Junk-bond investors have given Coinbase their endorsement, acquiring $2 billion worth of the company’s corporate bonds in an offering that saw over $7 billion worth of bids placed. With this, Coinbase became the second major crypto-linked firm, after Microstrategy, to complete a junk bond offering.

It’s interesting to note that Coinbase received such a huge demand even after the SEC warned it would sue the company over its yet-to-be-launched “Lend” program. Arguably, investors believe crypto is on the right track to gaining mainstream adoption — no matter how regulators respond. 

Coinbase announced its intention to sell $1.5 billion worth of junk bonds —a form of debt issued by companies that don’t have an investment-grade credit rating. 

However, after witnessing high demand from investors, the company expanded its offering to $2 billion. As per a report by Bloomberg, at least $7 billion worth of orders were placed, over 4.5x more than what was originally offered. 

The report claims that equal amounts of 7 and 10-year bonds were sold at interest rates of 3.375% and 3.625%, respectively. Citing someone familiar with the matter, Bloomberg says Coinbase has even received lower interest offers than the firm initially offered. 

Previously, Coinbase had stated that the funds would be used for “continued investments in product developments” and “potential investments in or acquisitions.” In simple terms, the company is raising money to be able to buy other crypto companies and increase its share of the market.

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Demand for Crypto is High Despite Regulatory Uncertainty

Coinbase is the second crypto-linked firm that has witnessed a massive demand for its junk bonds offering. In June, Microstrategy also witnessed huge demand for its junk bonds offering when the company wanted to raise funds to purchase more Bitcoin.

At that time, Microstrategy first revealed its intention to issue $400 million in a debut deal. However, after receiving about $1.6 billion in interest, the company boosted the size of its junk bond sale to $500 million. 

As covered by The Tokenist, large VCs and pension funds are growing increasingly interested in the crypto space. Considering the recent junk bond offerings by Coinbase and Microstrategy, it appears that debt investors like hedge funds are also endorsing crypto companies. 

This can be further approved considering that Dan Tapiero, CEO and Managing Partner at 10T, has invested over $650 million in crypto firms. The hedge fund veteran has invested in numerous crypto firms, including Kraken, Ledger, eToro, Huobi, and Figure.

Moreover, the fact that Coinbase saw huge demand even after the SEC warned it would sue the company over its yet-to-be-launched “Lend” program shows that the regulatory uncertainty around crypto does not seem to worry investors as much as it once did.

The crypto market used to be very reactive to regulatory scrutiny — prices would have tanked following an attack by an official. However, Coinbase’s junk offering suggests that things have changed drastically. Apparently, the market has matured — at least to a certain degree. 

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Coinbase Bonds Rated One Step Below Investment Grade

Since Coinbase did not have an investment-grade credit rating, the company had to issue junk bonds. However, the problem with junk bonds is that they are considered riskier since the issuer has a lower credit rating. Therefore, investors who buy such bonds expect higher interest rates. 

Despite getting lower interest rates as a result of the tight competition among investors, Coinbase didn’t get the lowest borrowing costs. The exchange’s bonds were rated one rank below investment grade. As per Bloomberg bond indexes, a similar debt has a 2.86% yield on average, while Coinbase offered over 3.3%.

What do you think the high demand for Coinbase’s corporate bonds means for crypto? Let us know in the comments below. 

About the author

Tim Fries is the cofounder of The Tokenist. He has a B. Sc. in Mechanical Engineering from the University of Michigan, and an MBA from the University of Chicago Booth School of Business. Tim served as a Senior Associate on the investment team at RW Baird’s US Private Equity division, and is also the co-founder of Protective Technologies Capital, an investment firms specializing in sensing, protection and control solutions.

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