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Coinbase’s Junk Bonds Success an ‘Endorsement’ by Institutions

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After selling off USD 2bn of debt in the form of junk bonds to a range of institutional investors, the US-based crypto exchange Coinbase has shown that “strong demand” exists among financial institutions to get exposure to the crypto space.

Demand among debt investors was much higher than what could be met, with at least USD 7bn of orders pouring in for the USD 2bn of debt for sale, Bloomberg reported, citing one unnamed source “with knowledge on the matter. 

Julie Chariell, a Bloomberg Intelligence analyst, called the successful sale “a big endorsement by debt investors” that clearly shows that “strong demand” exist for this type of debt in the bond market. Moreover, she also called Coinbase “a leader in crypto trading,” but noted that the company has taken steps to diversify away from just trading, which she said “can be a volatile business.”

The seven- and 10-year bonds offered by the exchange were sold with interest rates of 3.375% and 3.625%, respectively.

The debt was graded as one step below “investment grade,” with similarly graded bonds having a 2.86% interest on average, according to Bloomberg. However, the rate Coinbase got is still lower than the borrowing costs originally discussed between the exchange and its financial advisors, per the report.

Commenting on the deal, Zhu Su, CEO of Three Arrows Capital, called the successful bond sale a “huge endorsement of supercycle,” likely referring to the theory that digital asset prices will continue to rise without an impending bear market in the near term.

Meanwhile, financial ratings agency Moody’s wrote in a report released yesterday that Coinbase continues to maintain “strong finances” and a “highly profitable market position in digital assets.” 

“Its platform stands out as a reliable and trusted digital asset venue, with a diverse product offering that has reaped an 11% market share of crypto assets, 68 million active users and very strong recent profitability,” Moody’s said.

However, the agency also added a word of caution, saying that “regulatory and operational risks are abundant” in the crypto sector, which is why Coinbase has “invested extensively in its compliance and trade surveillance programs” to help it stay compliant.

Shares of Coinbase, with the ticker code COIN, have traded largely lower since last Tuesday, when the share price fell along with the broader crypto market. The price was up a mere 0.07% for the day on Tuesday, closing the day at USD 243 a share.
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