Coinbase's stocks and bonds both fell, market doubts profitability and solvency; Moody's: $5 billion in cash helps weather the storm

Following the collapse of FTX, aftershocks continue to affect the cryptocurrency industry. The stocks and bonds of Coinbase are continuing to decline, with bond prices plummeting in particular, indicating market concerns about Coinbase's future debt repayment capability.

Markets Insider Data shows that in the past month, the price of Coinbase's 2028 maturing bonds has dropped by about 10%, with prices now at only 58 cents (meaning you can buy $1 face value for just 58 cents), equivalent to a 14% annual yield. By comparison, at the beginning of 2022, the price for the same term bond was $93.

Brandywine Global Investment Management holds Coinbase bonds in its portfolio, with portfolio manager John McClain commenting, "Given the trading in the bond, the valuation of Coinbase's bond is quite depressed."

The FTX incident also caused Coinbase's stock price to plummet by 30% last month, from an opening of $69 on 11/1 to $47 currently, almost approaching the lowest price of the 3AC incident.

However, the biggest factor affecting Coinbase's stock price is still the trend in the crypto market. When Bitcoin hit an all-time high in November 2021, Coinbase's price was $369, but has since dropped by about 80%.

Moody's Financial Institutions Group: Adequate Cash Helps Coinbase Weather the Storm

If stock price reflects a company's future earnings valuation, then bonds represent the company's debt repayment capability.

According to the Financial Times, Moody's Investor Service believes that the collapse of FTX has impacted Coinbase's credit, shaken investors' trust in crypto companies, and coupled with the current market conditions, has affected Coinbase's trading volume and weakened its profitability.

Coinbase is a company highly dependent on exchange fee revenue. In Q3 this year, Coinbase reported a loss of $545 million, compared to a net profit of $406 million in the same period last year.

However, according to Q3 shareholder reports, Coinbase had around $5 billion in cash as of the end of September. Fadi Massih, Vice President of Moody's Financial Institutions Group, believes this will help them weather the storm.

Fadi Massih stated:

Despite recent poor financial performance, Coinbase has strong liquidity, which should help it navigate these challenges.

Brandywine's portfolio manager, John McClain, also agrees with this point but suggests that Coinbase should actively repurchase bonds. Because bonds (liabilities) themselves are leverage, and too much leverage can lead to consequences, as FTX has already demonstrated.

In addition, Fadi Massih added that after the collapse of FTX, a "market void" emerged, and going public has provided Coinbase with a transparent organizational structure and governance framework, giving Coinbase a stronger competitive edge to attract former FTX users, provided that the public still wants to trade cryptocurrencies.