Last week Coinbase came to the debt markets to raise $1.5 billion via senior notes. The debt offering was led by Goldman Sachs and the bonds were offered in two tranches - 7 years and 10 years. The market jumped at the opportunity and the issue received over $7 billion in bids, which led to the deal being upsized to $2 billion.
This was not Coinbase's first debt offering. In May, the company raised $1.25 billion via a private sale of convertible debt. What makes this offering unique is that this is a pure debt instrument by a crypto-related firm. MicroStrategy has in the past also issued debt but that has been only to acquire Bitcoin. Some of MSTR's notes are even secured by Bitcoin, which from a risk perspective makes 0 sense. However, common sense prevailed in the case of Coinbase's offering and the company raised debt for general corporate purposes - product development and M&A.
I believe Coinbase's successful debt issue is quite big. First, this is the first such offering - Pure debt raised for business purposes. $2bn is a tiny amount of money when compared to the overall capital available for investment. The bonds were issued at nearly 100 bps premium to comparable bonds. The investors were compensated for any perceived excess risk for credits with a similar rating. Moreover, 10 Year paper means, investors are ready to back a crypto exchange, institutional custodian, and market maker by lending to it for 10 years. If equity investors and debt investors are readily buying stocks and bonds of Coinbase, they are probably only waiting for regulatory clarity before they jump on the Bitcoin bandwagon. Second, debt investors don't invest for growth. They are inherently risk-averse and look at capital protection from a risk management point of view. The acceptance of Coinbase's debt also implies lower risk perception related to cryptocurrencies in my opinion.
Compared to MSTR's stock and debt, Coinbase's stock and debt are far superior as they are providing exposure to an actual business. MSTR is a proxy Bitcoin ETF. Coinbase's financial instruments offer exposure to a broader crypto ecosystem as compared to that of MicroStrategy. Additionally, MSTR has completely ruined its balance sheet by piling on a lot of debt. Coinbase is a company with low leverage. While investors in Coinbase's have done cash-flow-based lending and not asset-backed lending, Coinbase still offers better asset protection to their debt investors. Coinbase's offering for me is the first debt instrument that will pave the way for more crypto companies to raise cheaper money via debt markets. It's a great step forward for crypto!