The price of Coinbase’s junk bonds is falling amid an underwhelming first-quarter performance and concerns about what could happen in the event of a bankruptcy.
According to bond trading data from Trace Bonds, both of Coinbase’s junk bond offerings are down about 17% and 5.2%, respectively, since its Q1 report on Tuesday, standing at $63 and $62.31 at the time of writing. Overall, they are down 20% and 19%, respectively, since the beginning of this month.
10-year Coinbase bonds are trading at 63 cents on the dollar pic.twitter.com/fqmKmiXk5E
— State (@statelayer) May 12, 2022
Junk bonds are a form of corporate debt issued by non-investment grade companies. Companies borrow a specified amount of money through the junk bond offering and set a maturity (return) date and an interest rate, which they pay on top of the principal borrowed.
Because junk bonds have lower credit ratings, they pay higher interest rates than investment-grade corporate bonds. In the case of Coinbase, around $2 billion was raised in September via two evenly split offerings at 3.375% over seven years and 3.625% over 10 years.
Notably, both junk bond offerings launched at $100 each and have trended steadily down ever since. However, the stronger-than-usual drop this month suggests that investors are losing confidence in Coinbase’s future development.
Coinbase’s share price is also down 20% since the date of the Q1 report, despite earlier bearish investor sentiment, with the price down a whopping 50% since early May.
Disclosure of Bankruptcy Proceedings
The major crypto exchange posted Q1 losses of $430 million on a 27% drop in revenue compared to the first quarter of 2021.
Shortly after the report’s release, concerns were raised about disclosure in the Q1 report of the fate of users’ assets if the firm were “put into bankruptcy proceedings”.
The disclosure noted that in the event of the company’s bankruptcy, the user’s digital assets held on the platform could be “subject to bankruptcy proceedings” and treated as “unsecured creditors.”
Not your keys, not your crypto. This is from Coinbase. pic.twitter.com/CaIzQBYQ38
— Richard Heart (@RichardHeartWin) May 11, 2022
This seemed to prompt concerns on two ends of the spectrum, as users feared they might not be able to retrieve their assets if Coinbase were to disband. However, Bond hodlers seemed concerned at the idea that users could still be entitled to Coinbase’s fortune as they expect to get ahead of them online.
However, Coinbase CEO Brian Armstrong tried to allay fears after noticing this Twitter that “we do not have bankruptcy risk, but we have included a new risk factor based on an SEC requirement called SAB 121.”
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Earlier Friday, Armstrong also shared a note detailing the events of the past week.
The CEO called for calm, although he admitted that “it can be scary to see our share price fall with all the negative headlines that come with it,” as he hinted that the company can handle the current market downturn:
“In times like these we have to step back and zoom out. Nothing has changed at Coinbase this week, we are the same company as yesterday or a year ago. Rather, given our balance sheet, we are in an even stronger position.”
“This latest bull cycle has generated tremendous gains and cash that contributes to our resilience and we’ve built an incredible team with some of the best talent in the world,” he added.