As Coinbase Stock Drops, Crypto Exchange Preps Insurance Capital Raise

The company filed a shelf registration with the SEC, allowing it to issue new stock or debt down the line


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key takeaways

  • Coinbase stock fell 26% Wednesday after missing on earnings Tuesday
  • A shelf registration allows a company to register a new issue of securities in the form of primary or secondary offerings

Coinbase filed a shelf registration statement with the SEC, setting itself up for a potential capital raise or debt issuance as the crypto exchange’s stock continues to freefall, erasing billions of dollars in shareholder value. 

A shelf registration allows a company to register a new issuance of securities in the form of primary or secondary offerings. Because Coinbase chose a direct listing rather than an IPO, it did not raise additional outside capital when it went public in 2021. 

“While we have no immediate plans to offer securities at this time, by filing the shelf registration statement now, we will be able to offer and sell securities in the future should we choose to do so,” Coinbase wrote in a blog post Tuesday.  

The filing’s mandate is quite broad, according to Michael Miller, an equity analyst at Morningstar Research, as it covers common stock and preferred shares, as well as debt issuance, leaving Coinbase with several options to raise capital relatively quickly if executives pull that lever. 

Coinbase reported $1.17 billion in revenue during the first quarter, missing analyst estimates. Shares plummeted 26% Wednesday. 

First quarter total trading volume was $309 billion, a 44% decrease from the fourth quarter, which the exchange attributed to market conditions. 

Coinbase does have $6 billion in cash on hand and an additional $1.3 billion of crypto holdings on its balance sheet as a buffer in a down market, Miller said, but the filing positions Coinbase to access capital markets quickly if its core business lines continue to face such strong headwinds. 

The exchange, like its competitors, has been working to diversify its revenue streams away from its bread and butter trading fees — which have fallen as new exchanges launch — and into other cash-generating endeavors. The results so far have been mixed. 

“Given Coinbase’s slide out of profitability, they may struggle to issue debt at an attractive rate without a recovery in cryptocurrency markets,” Miller said. “This does make additional equity issuance, common stock or preferred, more likely than new debt in my opinion. At the moment, it’s unclear if they will do either, though.” 

Coinbase’s first quarter earnings report also includes a new disclosure that clarified that, should the exchange go under, customers’ assets are not safeguarded for reimbursement. The exchange currently custodies $256 billion in fiat currencies and digital assets.

“In the event of a bankruptcy, the crypto assets we hold in custody on behalf of our customers could be subject to bankruptcy proceedings and such customers could be treated as our general unsecured creditors,” Coinbase wrote in its first quarter earnings report Tuesday.

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