In a recent development, Coinbase issued a junk bond, and the market seemed to be hungry for the instrument. Currently, the US crypto exchange is recording more demands for these bonds every day. With these demands, the crypto exchange’s sales have grown from $1.5B to $2B.
Bonds are fixed investments that yield interest monthly. But when we talk of junk bonds, investors make higher returns but face higher risks as well. Companies usually issue junk bonds to raise capital very fast for a major project.
Corporate Bond Orders Keep Rising
The orders have continued to troop in for the Coinbase junk bond. One of our sources reveals that the orders amounting to $7 billion are competing for 7 and ten-year bonds, with interests of 3.375% & 3.625% each. From our sources, we also learned that some claims have risen that the interest rates were lower than what Coinbase offered in the first quotes.
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This increasing demand proves that the exchange didn’t know the extent to which the public regarded its creditworthiness. If they offered higher rates in the quotes, it meant that Coinbase was unsure that many people would invest in the bonds. So, the high demand showed them their worth, and the company reduced the rates.
Moreover, an analyst with Bloomberg stated that this high demand shows that debt investors have endorsed the exchange positively. But these bonds rank a bit lower than investment-grade bonds, according to Bloomberg bond indexes showing that debts offerings like what Coinbase issued get an average of 2.86% yield.
Coinbase And The Junk Bond Journey
The US-based crypto exchange announced this junk-bond issue on September 13. According to that announcement, the company aims to use the capital for its products developments. Also, they aim to acquire other technologies, companies, and products that they might find in the time to come.
Coinbase is the second crypto company to offer this debt instrument. Before now, MicroStrategy issued Notes worth $500M to invest in Bitcoin following the June market crash.
So, the crypto community has seen the likes of junk-bond offerings before now. This might be the reason for the surging demand plus the popularity of Coinbase in the industry.
On its opening day, the bond traded at $342 while the company’s COIN Stock sold for $243. But the COIN has managed to gain 20% since the end of June. What surprised the community more is that the exchange is facing a lot of threats from the SEC, yet the investors pushed money into the bond.
The Securities and Exchange Commission threatens the crypto exchange with possible legal action if it launches a USDC lending product. Before this threat, Coinbase planned to launch the USD Coin. But it seems that the company is keeping the plans at bay for the time being.
Currently the USD Coin is trading sideways | Source: USDCUSDT on TradingView.com
Featured image from Business Insider, chart from TradingView.com