Coinbase Increases Junk Bond Offering to $2B After Spike in Demand

Coinbase has increased the size of its junk bond offering sale by one-third after demand from investors skyrocketed through the roof.  The U.S-based cryptocurrency exchange upped the size from $1.5 billion to $2 billion after bids from junk bond investors reached $7 billion.

According to reports, the $7 billion worth of bids was placed in competition for equal quantities of seven and 10-year bonds, with interest rates going at 3.375% and 3.625% respectively which are lower than the initially discussed borrowing costs. Additional reports suggest that the interest rates were cheaper than the initial quotes offered by Coinbase, as the unprecedented rise in demand suggested that “buyers hold a higher opinion of the company’s creditworthiness than initially suspected by the exchange.”

Coinbase’s bonds were however rated one rank below investment-grade, with bond indexes from Bloomberg bond indicating that debt offerings fetch a 2.86% yield on average.

The crypto exchange’s debt offering announcement came on September 13, revealing that the funds may be used for “continued investments in product developments” and “potential investments in or acquisitions of other companies, products, or technologies” the firm may identify in the future.

Coinbase is now the second crypto-related junk bond issuer in the United States market as business intelligence and software developer, MicroStrategy Inc, sold $500 million of notes in June to fund the purchase of Bitcoin.

The crypto exchange’s bond offering has been met with laudable opinions as it comes in wake of a warning from the US Securities and Exchange Commission (SEC) against launching any product that would allow consumers to earn interest on their crypto holdings. Coinbase, before the SEC’s warning, had intended to launch its crypto lending product ‘Lend’ in only “a few weeks.”

Bloomberg Intelligence’s Julie Chariell speaking on the recent developments described Coinbase as a “strong company and a leader in crypto trading, but looking to do more to diversify away from that, which can be a volatile business.” Chariell added that DeFi is an area Coinbase is looking at and its ability to enter the bond market could prompt competitors including Binance or Gemini to eventually sell debt.

Julie Chariell also stated that the warm welcome from fixed-income investors shows that cryptocurrency has spread its wings past venture-capital funding, as debt investors including pension funds and hedge funds are looking to hop on the bandwagon. “The strong demand is clearly a big endorsement by debt investors,” Chariell stated.

Coinbase (COIN) stock is now up almost by 20% since the latter stage of June. The stock last traded for $243 since its opening day high of $342.