Coinbase Reports Decline in Q2 Revenue and Significant Stock Price Drop, Announces $2 Billion Convertible Bond Issuance for Bitcoin Purchases?

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Two Convertible Bonds, Targeting Institutional Investors

On Tuesday, August 6, Coinbase announced plans to privately issue two series of convertible senior unsecured notes, each valued at $1 billion, to qualified institutional investors under Rule 144A, with maturity dates set for 2029 and 2032, respectively, and an additional $300 million overallotment option.

According to the announcement, these two convertible bonds will pay interest semi-annually, and investors can choose to convert into cash, Coinbase Class A common stock, or a combination of both, with specific coupon rates and conversion prices to be determined at pricing. Coinbase reserves the right to redeem early. Additionally, Coinbase plans to set up “capped call transactions” for both bonds to mitigate future dilution effects from conversion and to hedge potential cash expenditure risks beyond the principal amount.

Coinbase stated that a portion of the proceeds from this private placement will be used to cover the costs of the “capped call transactions,” while the remainder will be allocated for general corporate purposes, including working capital, capital expenditures, mergers and acquisitions opportunities, or repurchasing existing debt, such as:

• 0.50% convertible bonds maturing in 2026
• 3.375% bonds maturing in 2028
• 3.625% bonds maturing in 2031
• 0.25% convertible bonds maturing in 2030

Information regarding coupon rates, conversion prices, or market demand has yet to be disclosed.

Q2 Financial Report and Cash Flow Pressure

The announcement of Coinbase’s bond issuance comes at a time when its second-quarter financial report fell short of expectations. The report indicated a decline in revenue compared to the previous quarter, coupled with rising operating costs, leading to a sharp market reaction in its stock price.

Benchmark investment firm, while rating the Q2 financial report as “weak,” reaffirmed a “buy” rating, considering it a long-term positioning opportunity. Mizuho Bank analysis pointed out that Coinbase’s report hinted at a compression in revenue related to the stablecoin USDC, speculating that Circle’s reserve interest income and revenue sharing paid to Coinbase have both declined, which could affect the subsequent revenue share from subscriptions and services categories.

Will the Funds Be Used to Purchase Bitcoin?

Will the funds raised be used to purchase cryptocurrencies? According to Coinbase’s press release, the funds will be used for general corporate purposes, specifically including:

• Working capital
• Capital expenditures
• Investments in and acquisitions of other companies, products, or technologies
• Repaying or redeeming existing bonds (e.g., bonds maturing in 2026, 2028, 2030, and 2031)
• Repurchasing Coinbase’s Class A shares

Among these, “investments in and acquisitions of other companies, products, or technologies” leaves room for flexibility. Therefore, Coinbase has not explicitly stated that the fundraising will be used for cryptocurrency investments, but based on past behavior and the flexible language in the statement, it cannot be ruled out that there may be such a use in the future.

According to the Q2 financial report, Coinbase acquired 2,509 Bitcoins (approximately $222 million) in the second quarter, raising its total holdings to 11,776 Bitcoins, re-entering the top ten of publicly traded companies by Bitcoin holdings and even surpassing Tesla in the number of Bitcoins held.