Coinbase, MicroStrategy Bonds Hammered by Industry Turmoil

Investors drawn to double-digit yields in the convertible bond market should be prepared to raise their risk tolerance, analysts say.

Coinbase and MicroStrategy, two crypto-related companies, saw their convertible bond yields surge as prices plummeted this month amid ongoing fallout from FTX’s bankruptcy. 

Coinbase’s bond — maturing in 2026 — dipped to an all-time low of 53 cents on the dollar last week, a level typically associated with distressed debt, Kaiko analysts said in a note Monday. The bond later recovered slightly to 59 cents on the dollar on Monday, trading data shows. Bond price and yield move in opposite directions. 

“Coinbase bonds look cheap to their stock,” trader Greg Foss said. “I would short Coinbase equity versus long the bonds.” 

Coinbase shares are down more than 40% over the past month, to around $42 as of Monday. 

MicroStrategy bonds, set to mature in 2028, also slumped on Monday to 78 cents on the dollar. The software company’s 2027 bonds trade at around 33 cents on the dollar and come with a 28% yield. 

If MicroStrategy and Coinbase survive until their respective bonds’ maturity dates and pay the debt in full, investors will pocket a gain. 

At the end of the third quarter of 2022, Coinbase reported about $3.4 billion in long-term debt, according to company filings. The exchange also posted a net revenue of around $576 million for the quarter. 

“We ended Q3 with $5.6 billion in total $USD resources, in addition to $483 million in crypto assets, which we believe puts us in a strong position to manage through the crypto winter,” Coinbase executives wrote in their third quarter shareholder letter.

MicroStrategy reported about $2.4 billion in long-term debt at the end of the third quarter in 2022, according to filings. The company had about $2.5 billion in assets, including bitcoin holdings worth around $2 billion at the time, MicroStrategy said.

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