KEY POINTS
Coinbase, the only cryptocurrency exchange listed on the U.S. stock market, recently unveiled a strategy to leverage the booming digital currency market. They’re planning to raise a whopping $1 billion by issuing convertible notes.
Coinbase announced this initiative on Tuesday, opting for a private offering of these unsecured convertible senior notes that can be exchanged for company shares — or cash — in 2030.
Coinbase to Employ Michael Saylor’s Strategy
Choosing this route over issuing new shares is a strategic move. Selling additional shares could have watered down the value for current shareholders, a scenario often frowned upon by investors. Instead, Coinbase is tapping into the debt market, a tactic Michael Saylor has successfully deployed at MicroStrategy.
MicroStrategy’s aggressive Bitcoin acquisition — now valued at a staggering $15 billion — was largely financed through the sale of over $2 billion in convertible notes. In fact, just this month, they sold $700 million worth, surpassing their initial $600 million target due to high demand.
Coinbase is going a step further to minimize ownership dilution from its debt-to-equity conversion. They’re setting up “negotiated capped call transactions,” which act as a safeguard against dilution. This is a contrast to MicroStrategy, which didn’t include such a measure in its latest deal.
Using Capped Calls to Protect Shareholders
Coinbase and other issuers of convertible debt use capped calls to safeguard shareholders against dilution, even in scenarios where the share price exceeds the conversion rate. Nonetheless, this safeguard does come with associated expenses.
Coinbase’s capped call transactions aim to account for the shares of Coinbase’s Class A common stock initially linked to the notes, with customary adjustments.
