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Coinbase plans to raise $1 billion through a convertible bond offering, following in the vein of Michael Saylor’s MicroStrategy.
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This product has an additional clause called “negotiated capped call trading,” which ensures less dilution upon conversion.
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The increase came after Wall Street analysts protested their bearish stance on the stock.
Coinbase (COIN), the only publicly traded cryptocurrency exchange in the U.S., recently raised $1 billion through a convertible bond sale, avoiding a stock sale that could negatively impact its stock price. announced plans to earn cash from the rise in digital assets. The path Michael Saylor’s MicroStrategy took to fund its crypto ambitions.
Coinbase announced Tuesday that it will be offering unsecured convertible notes through a private placement. Convertible bonds can be converted into stock (or cash) in the issuing company at some point. In a note Coinbase plans to provide, the conversion year is 2030. If the company had instead chosen to raise funds by selling new Coinbase stock, it would have diluted existing shareholders’ ownership, which investors might view unfavorably.
Coinbase is pursuing the strategy Saylor has been pursuing at MicroStrategy for the past few years by using the bond market to fund its cryptocurrency operations. Saylor’s company has purchased 205,000 Bitcoins, now valued at nearly $15 billion, much of which was financed by MicroStrategy’s sale of more than $2 billion in convertible debt. This month alone, MicroStrategy has sold $700 million of that, but there’s been enough demand that it could exceed the $600 million the company originally expected.
Coinbase has taken special steps to reduce dilution when debt is converted to equity by offering “negotiated capped call transactions.” This is essentially a hedge to prevent dilution during the conversion of the notes. (MicroStrategy’s most recent contract contained no such clause.)
Issuers use these hedges with convertible bonds to protect existing shareholders from dilution even if the stock price rises above the conversion price, although they must pay a fee. Fitness company Peloton famously raised $1 billion in convertible debt with capped call options in 2021 during its wildly rising stock price. “The capped call transaction will initially cover the number of shares of Coinbase’s Class A common stock underlying the notes, subject to customary adjustments,” Coinbase said.
The move comes in the wake of Bitcoin’s massive rally, with the digital asset’s price reaching an all-time high of over $73,000. Bitcoin is up 67% this year, and Coinbase stock has soared 48% over the same period. Publicly traded companies often take advantage of bull markets by selling new securities, such as stock or convertible bonds, to raise funds.
Coinbase said it may use proceeds from the transaction to pay down debt, potentially pay for capped call trades, and possibly acquire other companies.
Coinbase’s $1 billion offer comes after some Wall Street analysts abandoned their bearish stance on the stock. Raymond James and Goldman Sachs are among the bears who have hiked their stock prices due to the massive rally in the digital asset market.
read more: As the bears capitulate, Coinbase releases new upgrade, this time with Raymond James
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