Will you follow the micro strategy and buy Bitcoin? Coinbase issues $1 billion in convertible corporate bonds!

US cryptocurrency exchange Coinbase announced today that it plans to issue convertible corporate bonds to raise US$1 billion. The move, aimed at avoiding a possible impact on its stock price through a stake sale, is similar to how Michael Saylor's MicroStrategy funded its cryptocurrency vision.

Avoid selling new shares and diluting shareholder ratio

Coinbase plans to raise funds through a private placement of senior unsecured convertible bonds with a deadline of 2030. This type of convertible bond can be converted into company stock or cash under certain conditions. In contrast, if Coinbase chooses to raise funds by issuing new shares, this will result in the dilution of existing shareholders' shareholdings, which may cause investor dissatisfaction.

Coindesk reported that by using the bond market to raise funds for its cryptocurrency business, Coinbase is following the strategy pursued by MicroStrategy over the past few years, which has purchased 205,000 Bitcoins currently worth nearly $15 billion. Most of the purchases were funded by more than $2 billion in convertible bonds sold by MicroStrategy.

MicroStrategy recently revealed that they invested $820 million to purchase 12,000 Bitcoins. The funds were obtained through a private placement of $800 million in senior convertible debt to qualified institutional investors.

Will repay debt and use it for acquisitions

Bitcoin has risen 67% this year amid strong performance in the cryptocurrency market. Coinbase's stock price also surged 63%, which shows the ability of public companies to obtain funds in the bull market. Companies typically raise funds through the sale of new securities such as stocks and convertible bonds.

Coinbase mentioned that they are considering using the proceeds from this transaction to repay debt, pay for potential capped subscription transaction fees, and possibly invest in or acquire other companies, products, or technologies.

Coinbase uses "negotiable capped call option trading" to reduce the dilution effect when debt is converted into equity. This measure is essentially a hedging strategy designed to prevent existing shareholders from being diluted during the bond conversion process.

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