- Coinbase bonds are at historic lows, trading at 51 cents, MicroStrategy at 75 cents on the dollar;
- Coinbase and MicroStrategy bond yields carry a premium of about 1,000 basis points to 10-year Treasuries;
- FTX’s collapse is likely responsible for shaking institutional confidence in the industry.
Bonds issued by crypto exchange Coinbase and business intelligence MicroStrategy dropped to historic lows as higher interest rates and low institutional confidence rock the crypto industry.
Coinbase, one of the leading US-based cryptocurrency exchanges, saw its bond due 2031 drop 15% in November. The bond is now trading at around 50.5 cents on the dollar, indicating that investors believe there’s a high likelihood of default. The yield, which moves opposite to bond prices, jumped to 13.5%. The yield on Coinbase’s bond due 2026 jumped even higher to 17%.
Bonds issued by MicroStrategy, a business intelligence company owned by Bitcoin maximalist Michael Saylor, have taken a hit as well. The price of its 2028 notes dropped to a record low of 72.5 cents on the dollar, and yields climbed to 13.35%.
MicroStrategy originally issued these bonds to fund its investment in Bitcoin. Currently, the company holds about 130,000 bitcoins, the equivalent of about $2.1 billion. Last quarter, the company lost about $3.4 billion due to a drop in the price of BTC.
Rate Hikes, FTX Collapse Push Bonds Up
Federal Reserve rate hikes have taken a toll on high-growth, risk assets such as tech and crypto. Higher interest rates push bond yields up across the board, making investors less likely to pursue high returns in speculative ventures.
However, Coinbase and MicroStrategy bond rates are disproportionally high and can’t be explained by interest rates alone. The bonds of the two companies currently carry a premium of about 1,000 basis points to Treasury notes. U.S. 10-year Treasury yields are currently 3.78%.
The high premiums (and low bond prices) are likely influenced by the drop in institutional confidence in crypto. The FTX collapse was a major blow to institutional crypto adoption, as saw many institutions cut their exposure to digital assets.
Bonds trade lower when investors believe that there’s a high chance that the issuing party won’t be able to make the payment. This could happen because of expected liquidity issues, or if investors believe that the issuing party is likely to go bankrupt.
Markets seem to believe that we have not seen the end of the FTX contagion.
On the Flipside
- Despite the current market sentiment, many investors believe that crypto has large upside potential in the long run.
Why You Should Care
High discounts on crypto bonds could indicate that the crypto market is about to experience more pain.
Find out why institutions are fleeing crypto:
Institutional Investors Forgo Digital Assets Following FTX Crash
Learn about how the collapse of FTX could tank the crypto industry:
Will FTX’s Blowup be the Final Straw for Crypto?