The Coinbase share closed at USD 44.21 which although, meant it rose by almost 2%, it also means that it is down almost 33% in the past six months. Believe it or not, the stock went as high as USD 98.02 on August 08th, 2022 which marked its peak along with the beginning of its downfall. “What goes up must come down eh?”
But the stock price is no longer the only security affected by the crypto slump that continues to baffle us (not really) with its aftereffects. The bursting of this bubble has caused ripples within the industry as a whole. From the ultimate collapse of rival FTX to now Coinbase Global’s bonds absorbing heavy damage, it has been a journey for the crypto-world and its investors as they started ditching FTX. FTX really went from having a sponsor spot on Mercedes’ F1 car to facing the axe in a sudden but not so sudden collapse.
Coming over to Coinbase Global, the bonds much like its shares have seen a sharp fall in prices. Seems as if investors are no longer investing time or money both through their app or their securities. The crypto exchange’s note due 2031 was trading at 51 cents on the dollar on Tuesday, down from its August peak of 68.50 cents on the dollar. Yields – that trade inversely to the price of the bond- jumped to 13.1%, according to Refinitiv data.
Let me explain this better. A basic principle for the valuation or pricing of a bond depends on the yield. Its price is inversely related to yield – the reason being that as the required yield (read return) increases, the present value of the cash flow decreases; and vice-versa. Hence, the increase in yield to 13.1% meant the PV of cashflows would decrease leading to a sharper decline in bond prices.
The rising yield shows investor concerns for the bond. This jumped yield rate leads to the tumbling down of bond pricing by off-loading investors seeing this as an obvious sign of risk and you can understand the rest of the story. When compared to the beginning of the year, the crypto’s bonds were trading at around 93 cents to the dollar. So, in almost 11 months, it has seen a fall of around 45%.
Compared to the 10-year US treasury bond, the prospects of a recovery seem to be “if and when” rather than “when.” The 10-year US treasury bond was trading at around 3.806% which further concretes investor beliefs. Expected behaviour of investors, especially after the FTX collapse, appears to be extremely bearish on the crypto market overall. Moody’s Investor Service is currently holding the Coinbase family rating on review which stands at Ba3. If you are unaware, Moody’s Baa3 ratings and lower means that it is highly speculative and adverse economic conditions would weaken the obligor’s capacity to repay. Moody’s Baa3 is equivalent to a Fitch and S&P BBB- rating. Coinbase currently stands a level below that rating at Ba3 and is also under review.
If we are to believe Moody’s, the FTX collapse has heightened the level of uncertainty in crypto industry, raising challenges for all those operating within the sector. So, not just FTX or some crypto currencies but all the elements involved within are expecting a 2007 level threat. At least within their industry.
The crypto exchange could be seeing “an increasing possibility of sustained reductions in trading volumes and client engagement, that are important factors for Coinbase’s revenue” said Moody’s Vice President and Senior Analyst Fadi Abdel Massih and these statements do not appear to be much far from the limited analysis we can draw from their market numbers.
