The first bonds of Coinbase, the trading platform of “cryptocurrencies”, including mainly Bitcoin and Ethereum. There is talk of the imminent issue of a 10-year maturity for an amount of 1.5 billion dollars. They will debut as “junk” stocks, given the low ratings assigned to them by S&P and Moody’s BB + and Ba1 respectively.
The market is already pricing Coinbase bonds in the 4% area, substantially more than the average 2.90% for a ten-year bond with these judgments. Indeed, it is a particular business that of the issuer. We are not talking about a really new company, having been in business for 9 years. However, it went public a few months ago with a spectacular IPO, which brought the company’s valuation up to 86 billion. At the end of yesterday’s session, however, it was already just over 50 billion.
Coinbase bonds, legal risks lurking
Coinbase bonds will contain unique risks. They will derive not only from the low ratings of the rating agencies, but also from the type of business that is always the subject of attention from financial authorities, governments and central banks. Moreover, the company is exposed to the high volatility of “cryptocurrencies”, collecting on the basis of prices hesitated during the negotiation phase. But the fact remains that S&P has defined Coinbase as “solid and low in debt”. It closed the second quarter with € 4.4 billion in cash and € 1.5 billion in long-term debt.
Here, we are faced with a bond with high potential, as are the risks. What, however, should induce an investor on the hunt for “yield” to raise their antennas on this deal? The fact that the SEC would never authorize the issuance of bonds by a company, which operates a business that it would subsequently close.
The growing diffusion of Bitcoin, in particular, in the portfolios of investment houses leads us to think that the legal risks, while still evident, tend to be less serious than we fear.