For many high-yield bond investors, cryptocurrencies and related assets remain a tough sell. Some money managers who declined to participate in Coinbase’s offering and who asked not to be named because they’re not authorized to speak publicly said that they were unconvinced about the company’s long-term prospects. They said they’re also unsure of Coinbase’s ability to stave off competition as digital currencies become more widely accepted and its resilience in the face of sudden drops in the price of Bitcoin.
“We regard the company’s very low leverage, strong liquidity, a solid market share of crypto assets on its platform and a strong track record of avoiding security breaches since inception as rating strengths,” S&P said in a statement Monday. “These are balanced by its reliance on retail transaction revenue, elevated volatility in the asset class, and competitive risk in a nascent asset class.”
Moody’s cited the firm’s “leading franchise in offering crypto-based services to a large number of retail and institutional customers,” and said Coinbase has benefitted from strong revenue and earnings growth.
Coinbase is also growing through acquisitions. Just this year, it bought analytics provider Skew and crypto cloud service Bison Trails.
Cryptocurrency markets are highly volatile, adding a layer of risk for investors in the industry. The world’s biggest cryptocurrency, Bitcoin, is up more than 50% since the beginning of the year -- ranging between about $28,000 and $65,000. Smaller cryptocurrencies tend to swing even more. Coinbase’s shares are down less than 1% since their April debut, though they had shot higher right after their direct listing, before falling over the next month.
Companies are storming the bond market, taking advantage of an attractive funding environment. Borrowing costs are expected to rise when the Federal Reserve begins tapering its support for financial markets. MicroStrategy Inc. sold the first ever junk bond to fund Bitcoin purchases in June. Its $500 million of bonds due in 2028 have risen since then to over 102 cents on the dollar, according to Trace pricing data.
--With assistance from Max Reyes, Joanna Ossinger and Davide Scigliuzzo.
This article was provided by Bloomberg News.