Coinbase announced plans yesterday for a proposed private offering of $1.25 billion.
In a press release issued yesterday, Coinbase unveiled plans to issue convertible senior notes totaling $1.25 billion. The cryptocurrency exchange recently went public, and its stock — which had initially struggled — managed to trade above its $250 reference price. After the company announced it would raise additional capital, the share price slipped below that reference level.
The convertible note announcement comes just one week after Coinbase reported strong first-quarter results. For Q1 2021, the exchange disclosed total revenue of $1.8 billion. In an unexpected move, the company plans to raise a substantial sum by offering senior convertible notes due in 2026.
In the company statement, Coinbase said: “This capital raise represents an opportunity to strengthen Coinbase’s already strong balance sheet with low-cost capital that preserves operating flexibility and minimizes dilution for Coinbase shareholders.”
Convertible notes are corporate bonds that give holders the choice of receiving cash with interest or converting their notes into a predetermined number of the issuer’s common shares. According to the company’s press release, the offering will be private and available only to institutional investors.
As is typical with this type of financing, Coinbase did not provide extensive detail about the specific uses of the proceeds, though it noted that funds will be used for general corporate purposes. The market reaction appeared muted: Coinbase’s stock fell about 4% the same day, briefly touching a low of $238 before recovering to around $248.
The somewhat vague announcement fueled speculation within the crypto community about why Coinbase is seeking additional capital. One popular theory draws a parallel to MicroStrategy, which completed a similar convertible note offering in February and subsequently made a large Bitcoin purchase.
Business intelligence firm MicroStrategy conducted a $1.05 billion convertible notes offering earlier this year, then disclosed purchases exceeding 19,000 Bitcoins at a total cost of roughly $1.6 billion. Coinbase is not the only company pursuing capital via this method.
Twitter also confirmed a convertible note offering in March, planning to raise approximately $1.25 billion. While Twitter did not disclose intended uses for the proceeds, observers speculated that, given the pro-Bitcoin views of some tech executives, such financings could precede large cryptocurrency investments.