Making the most of its stock price surge, Coinbase, the US’ only publicly traded cryptocurrency exchange, has revealed plans to raise $1 billion by issuing convertible bonds. This decision mirrors strategies employed by other big players in the market, like MicroStrategy, and comes at a time when the company’s stock price is hovering near a 26-month peak, largely driven by the recent rally in cryptocurrency values.
On Tuesday, Coinbase announced its intention to sell convertible senior notes to institutional investors through a private offering. The allure of convertible bonds lies in their ability to be exchanged for stocks, cash, or a mix of both. Coinbase has set the conversion year at 2030.
Opting for this route, as opposed to issuing new shares, helps the company avoid diluting the stake of existing shareholders, a scenario typically frowned upon by existing investors.
Additionally, the company has introduced the possibility for investors to purchase up to an additional $150 million in notes during the initial 30 days of the offering.
Following MicroStrategy’s footsteps
Coinbase’s latest financial manoeuvre aligns with a similar strategy by MicroStrategy, led by CEO Michael Saylor.
Saylor’s firm has become notorious for its aggressive acquisition of Bitcoin ($BTC), holding over 205,000 units of the cryptocurrency, currently valued at approximately $15 billion. This accumulation has been significantly financed by the sale of over $2 billion in convertible notes.
However, Coinbase is setting itself apart by implementing “negotiated capped call transactions” aimed at minimising equity dilution when the debt converts.
The Coinbase stock and wider crypto market rally
The timing of Coinbase’s bond offering aligns with a significant surge in Bitcoin prices, which recently exceeded $73,000, marking an all-time high. The rise in bitcoin’s value, up 66% this year, parallels Coinbase’s stock, which has increased by 48% over the same period.
The company’s decision to issue convertible bonds during a bullish market for digital assets reflects a strategic move to strengthen its financial position without compromising shareholder interests.
Coinbase has indicated that the proceeds from the bond sale may be used for various purposes, including debt repayment, funding for capped call transactions, and potential acquisitions.
The bond offering also arrives as some Wall Street analysts, previously bearish on Coinbase’s stock, have revised their opinions. Analysts from Raymond James and Goldman Sachs, for instance, have upgraded their assessments following the rally in the cryptocurrency market.
