Coinbase’s Bond Yields Spike to 17%, MicroStrategy to 27%

Coinbase is seeing a terrible year with its stock down 86% to $42 dollars from a peak of $370 in November 2021.

Their bonds have also crashed to $52 for the 2028 maturity from $100, giving it a yield of 17% currently.

Coinbase has two further bonds, a $1.4 billion of convertibles maturing in 2026 with it convertible only if the stock price hits $370, and a $1 billion bond maturing in 2031 with a current yield of 12%.

In total they have $3.4 billion of outstanding debt mostly at an interest rate of circa 3.5%.

They had $6 billion in cash as of Q2 2022, but reported a $500 million loss for Q3 2022.

Based on these raw numbers, the debt might seem undervalued but cryptos have hit a new low with bitcoin just about falling below $16,000.

Any recovery that would be felt by Coinbase may not be in sight for another two years. In which case at a half a billion loss a quarter, they would be left with just $2 billion in cash, less than the outstanding debt.

Coinbase therefore has to cut spending with it laying off 1000 employees this year, but the exchange is managing better than MicroStrategy which has seen its bond yield rise to 27%.

MSTR’s stock is also down 76% this year, with it having about $2 billion in bonds used to buy bitcoin.

Their bitcoin holdings of 130,000 BTC are also valued at about $2 billion, with it unclear for how long they can cover interest payments from profits.

Speculation has been raging for some time now that MicroStrategy might have to sell some of their bitcoin, but these bonds won’t mature until 2025-28.

That leaves plenty of time for bitcoin to potentially recover, but MSTR clearly has taken a significant amount of risk which markets are now pricing in.

Other crypto related entities are doing even worse. DGHI for example, a bitcoin miner, is down 90%.

That makes this the first crypto bull-bear cycle during which the stock market has significant exposure to bitcoin as previously there were hardly any stock traded crypto entities.

The crypto downturn therefore may be affecting stocks, with Nasdaq down another 1% today as the bear market in many asset classes continues.