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Coinbase, the largest cryptocurrency exchange in the US is poised to borrow $1.5bn from bond investors this week, in a sign of increasing acceptance on Wall Street of the still nascent industry.
Coinbase said on Monday that it was seeking to borrow the cash through two bonds, one with a 10-year maturity and the other maturing in seven years. The deal is being led by Goldman Sachs, with a call with potential investors scheduled for Monday morning, according to people familiar with the transaction.
The debt deal comes shortly after the Securities and Exchange Commission threatened to sue Coinbase over its plans to launch a product called Lend, that would allow users to earn interest on their cryptocurrency holdings.
It is not the first time Coinbase has tapped debt markets to raise cash, having borrowed more than $1.4bn through a convertible note earlier this year.
However, it is the first time the company has sought to borrow from more mainstay bond investors. If the fundraising is successful, it would be a watershed moment for the cryptocurrency industry and its ability to access traditional sources of capital.
The bond deal comes at a time of furious fundraising in debt markets, with yield-hungry investors hoovering up dozens of bond offerings from a flurry of companies this month.
Frothy bond markets bode well for Coinbase’s fundraising, which is expected to be finalised on Tuesday, as the company looks to take advantage of cheap borrowing costs.
The bonds are initially being marketed to investors with a coupon close to four percentage points for the seven-year bond and close to five percentage points for the 10-year, according to a person with direct knowledge of discussions.
That compares with an average of 3.9 per cent for the high-yield bond market, according to an index run by Ice Data Services, which has an average duration of about four years.
“This capital raise represents an opportunity to bolster our already-strong balance sheet with low-cost capital,” the company noted in a press release.
Coinbase said it intended to use the proceeds of the deal for general corporate purposes, including investment in product development and acquisitions.
Credit rating agency Moody’s said it expected to rate the bond deal at the upper end of the high-yield spectrum, close to the threshold for being considered investment grade.
The exchange, which publicly listed its shares in April, posted bumper earnings for the second quarter, with trading revenues boosted by wild swings in the prices of major cryptocurrencies.
Net revenue hit more than $2bn, up 27 per cent from the first quarter and more than 1,000 per cent from the second quarter of 2020. Net income rose from $32m to $1.6bn over the same period.
The company is also looking to expand its footprint overseas. Coinbase entered into an agreement last month with Mitsubishi UFJ Financial Group to gives the Japanese bank’s customers access to the exchange through their existing bank accounts.