Junk-bond investors gave cryptocurrencies their biggest endorsement yet as Coinbase Global Inc. sold $2 billion of debt.
Demand was so high — at least $7 billion of orders poured in — that the crypto behemoth was able to boost the deal’s size from $1.5 billion, according to a person with knowledge of the matter.
Equal amounts of seven- and 10-year bonds were sold at interest rates of 3.375% and 3.625%, respectively, lower than the initially discussed borrowing costs, other people familiar with the situation said.
The warm welcome from fixed-income investors shows that cryptocurrency is no longer a sector reserved for venture-capital funding, as debt investors including pension funds and hedge funds look to get in on the action.
“The strong demand is clearly a big endorsement by debt investors,” said Julie Chariell, an analyst at Bloomberg Intelligence.
Coinbase is the second crypto-related junk bond issuer in the U.S. market. MicroStrategy Inc., the software developer that’s turning into a digital-asset investor, sold $500 million of notes in June to fund the purchase of Bitcoin. Coinbase, a crypto brokerage and exchange, is earmarking its greater proceeds for general corporate purposes, potentially including product development and takeovers.
Despite being able to cut its rate, Coinbase didn’t get rock-bottom borrowing costs. The new bonds were rated one step below investment grade. Similarly rated debt has a 2.86% yield on average, according to Bloomberg bond indexes.
But opportunities for growth are manifest as years of crypto hype is finally — and rapidly — turning into something resembling mainstream adoption, so paying a little extra to have cash on hand to fuel new initiatives might not be a bad idea.
Underscoring the industry’s potential, it emerged Tuesday that Jump Trading Group, one of the world’s biggest traders, has committed billions of dollars in capital to crypto trading and developing software for decentralized finance, or DeFi, a blockchain-fueled corner of crypto that aims to replace convention finance.
Coinbase is a “strong company and a leader in crypto trading, but it’s looking to do more to diversify away from that, which can be a volatile business,” Bloomberg Intelligence’s Chariell said, adding that DeFi is an area Coinbase is looking at.
Its ability to tap the bond market could prompt competitors like Binance or Gemini to eventually sell debt, Chariell said.
The bond offering is a win for Coinbase as it contends with a warning from the U.S. Securities and Exchange Commission against launching a product that would allow consumers to earn interest on their crypto holdings.
Goldman Sachs Group Inc. managed the sale of the Coinbase notes.
