On Tuesday September 14, Moody’s Investors Service initiated a Ba2 rating of Coinbase GlobalInc., which translates to a non investment/junk grade as a debt issuer.
“Coinbase’s financial profit suggests investment credit strength, but for now the uncertain regulatory environment and fierce competition offset these strengths,” writes Fadi Abdel Massih, Moody analyst and reporter.
Their credit rating is equivalent to a BB at S&P Global Ratings and Fitch Ratings indicating a speculative presumption. This decision follows an announcement by Coinbase that they are selling $1.5 billion in bonds to use for general corporate purposes such as investments in product developments or future acquisitions of physical or intellectual property/entities. The notes will be due in 2028 and 2031.
Moody analysts further explained that due to the unorthodox price fluctuations of Bitcoin(BTC-USD) and Ethereum (ETH-USD) on the Ethereum blockchain which doesn’t bode well for investors who are looking for stability. Coinbase argues that its strong market share helps to reduce the negative exposure to the price fluctuations of the coins in the short term. Coinbase has also indicated they will be developing more stable revenue streams that aren’t vulnerable to price fluctuations of a volatile market.
“Instead of charging a fixed dollar amount per trade, Coinbase earns a percentage of the notional value of trades matched on its platform. In an up market this can be very lucrative.However, when prices decline, the notional traded amount and the firm’s transaction revenue will also decline unless volumes increase. To address this reliance on transaction revenue, Coinbase is diversifying its list of tradable products and expanding its subscription-based revenue, but it will take time for this strategy to have a material effect,” Moody analysts wrote.
Coinbase is reported to have been trying to launch a lending platform where customers that hold a stable coin called USD Coin which would be able to earn interest by being lended to other users. Coinbase initially planned to sell the stable coin to traders but expanded the program to include other cryptocurrencies.
The move has been met with fierce opposition by the Securities and Exchange Commission (SEC). The SEC has been investigating the company and indicated they would sue Coinbase over this program.