Coinbase will fund $1 billion through a convertible debt offering, like Michael Saylor's MicroStrategy. The offering includes "negotiated capped call transactions," which reduce conversion dilution. The rise comes after Wall Street analysts abandoned their pessimistic outlook on the stock.
Coinbase (COIN), the only publicly traded cryptocurrency exchange in the U.S., announced a plan to raise $1 billion by selling convertible bonds, avoiding an equity sale that could hurt its stock price and following Michael Saylor's MicroStrategy's crypto funding strategy.
Coinbase announced a private offering of unsecured convertible senior notes on Tuesday. At some point, convertible bonds can be converted into corporate shares or cash. The conversion year for Coinbase's notes is 2030. Instead, the corporation might have sold new Coinbase shares, diluting shareholder ownership, which investors may dislike.
Coinbase is funding its crypto company with debt, a method Saylor has used at MicroStrategy for years. Over $2 billion in convertible notes from MicroStrategy supported Saylor's company's purchase of 205,000 bitcoin, valued roughly $15 billion. MicroStrategy sold $700 million of them this month, above its $600 million target due to demand.
Coinbase offers "negotiated capped call transactions" to hedge against dilution when converting debt into stock. In its last deal, MicroStrategy did not incorporate this provision.
Despite paying a fee, issuers utilize convertible debt hedges to prevent dilution to existing shareholders when their share price increases over the conversion price. Peloton notably raised $1 billion in convertible loans in 2021, including a capped call option, during its rapid climb. "The capped call transactions will cover, subject to customary adjustments, the number of shares of Coinbase's Class A common stock that will initially underlie the notes," said Coinbase.
After a strong increase in bitcoin, the price reached an all-time high of $73,000. Bitcoin is up 67% this year, while Coinbase's stock is up 48%. Publicly traded corporations sell shares, convertible notes, etc. during bull markets.
Coinbase said it may use transaction earnings to settle debt, pay for capped phone transactions, and purchase other companies. Before Coinbase's $1 billion IPO, some Wall Street analysts were gloomy. Raymond James and Goldman Sachs, bearish, upgraded the stock noting the big digital asset surge.
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