Coinbase’s junk bond price is plummeting amid poor Q1 performance and fears of what could happen in case of bankruptcy.
Trace Bonds’ bond trading data shows that Coinbase’s two junk bond products have fallen about 17% and 5.2% since the first quarter report on May 10, remaining at $63 and $62.31 at the time of writing. Overall, they have fallen 20% and 19% respectively since the beginning of the month.
10-Year Coinbase Bonds Trading at 63 Cents per Dollar pic.twitter.com/fqmmiXk5E
— state (@statelayer) May 12, 2022
Junk bonds are a form of corporate bonds issued by companies that do not have an investment grade credit rating. The company will borrow a certain amount of money through a junk bond public offering, and pay maturity (return date) and interest in addition to the borrowed amount.
Junk bonds have a lower credit rating and therefore require higher interest rates than investment grade corporate bonds. Coinbase raised approximately $2 billion in September through two equally distributed offerings: 3.375% over 7 years and 3.625% over 10 years.
In particular, two junk bond products launched at $100 each and have been steadily declining since then. However, a sharper-than-usual decline this month suggests investors are losing confidence in Coinbase moving forward.
Although the price of Coinbase stock (COIN) has also fallen 20% since the date of the Q1 report, investor sentiment has already weakened and the price has fallen by as much as 50% since early May.
Disclosure of bankruptcy proceedings
The major cryptocurrency exchange posted a first-quarter loss of $430 million, with a 27% decline in revenue compared to the first quarter of 2021.
Shortly after the report was released, concerns were raised about the release of the Q1 report on the fate of user assets if the company is “subject to bankruptcy proceedings”.
The disclosure noted that users’ digital assets held on the platform could be “subject to bankruptcy proceedings” and treated as “unsecured creditors” if the company goes bankrupt.
Not your key, not your cryptocurrency. This is from Coinbase. pic.twitter.com/CazQBYQ38
— Richard Heart (@RichardHeartWin) May 11, 2022
It appears to be causing fear at both ends of the spectrum, as users feared that they would not be able to retrieve their assets if Coinbase were to disband. However, bondholders seemed concerned about the idea that users could still claim some degree of ownership of Coinbase’s assets. line.
However, Coinbase CEO Brian Armstrong tried to contain his fears after remarking: Twitter “We have no bankruptcy risk, but we have included a new risk factor under the SEC requirement of SAB 121.”
Relevant: Crypto-related stocks took a hit as COIN and HOOD fell to record lows.
Earlier today, Armstrong also shared a note about last week’s event.
The CEO demanded composure while acknowledging “how terrifying it is to see our stock prices fall with relevant negative headlines”, suggesting the company can handle the current market downturn.
“At times like this, we need to step back and scale back. No changes were made to Coinbase this week. We are the same company as yesterday or a year ago. Given the balance sheet, we are in a much stronger position.”
“This last bullish cycle has generated tremendous profits and cash that adds to our resilience and we have put together an amazing team of some of the best talent in the world,” he added.