Coinbase Bond Bounces Back On Bitcoin Rally, While SEC Delays Key ETF Feature

The recent surge in cryptocurrency markets, led by Bitcoin (BTC), which hit a new all-time high (ATH) of $69,300 on Tuesday, has sparked a notable rebound in a bond issued by US-based crypto exchange company Coinbase.

The convertible bond, initially sold during the pandemic as demand for tech and growth stocks soared, has now reached a two-year high, benefiting from the recovery in digital asset prices. 

According to Bloomberg, this resurgence in the bond’s value mirrors a broader resurgence in the appetite for convertible bonds, particularly in the artificial intelligence (AI) sector, where some firms have successfully issued bonds with no coupon. 

MicroStrategy, Coinbase Lead The Charge In Crypto-Backed Bond Offerings

Coinbase issued a convertible bond, a financial instrument that can be converted into company shares upon maturity. Initially sold with a coupon of just 0.5%, the bond faced a decline in demand when the underlying stock slumped due to rising global interest rates. 

However, the recent rally in cryptocurrencies has spurred a bond value recovery. The security’s cash price has surged to 102.625 cents on the dollar, reaching a two-year high and pushing the yield into negative territory. This rebound has nearly doubled the bond’s value since its November 2022 trough of 52.75 cents.

Coinciding with the recovery of Coinbase’s convertible bond, the broader market for convertible bonds has witnessed a resurgence in investor appetite. 

According to Bloomberg, some firms in the AI sector have managed to sell bonds with no coupon, indicating strong investor demand for these types of financial instruments. 

In the crypto space, MicroStrategy, led by Michael Saylor, is reported to have successfully sold a $700 million convertible bond with a coupon as low as 0.625% to raise funds for additional Bitcoin purchases. DigitalOcean, another crypto-related company, currently has its bonds trading at 83 cents, the highest level since January 2022.

SEC Extends Decision Timeline On Bitcoin ETF Options

As Bitcoinist reported on February 29, asset manager Grayscale has requested the US Securities and Exchange Commission (SEC) to allow options trading on spot Bitcoin exchange-traded funds (ETFs).

Grayscale argues that allowing options on its Grayscale Bitcoin Trust (GBTC) would provide greater accessibility for investors. The SEC, however, has extended the decision timeline, prompting Grayscale to emphasize the need for exchange-listed options on GBTC and other spot Bitcoin ETFs. 

In a letter addressed to the SEC, Grayscale CEO Michael Sonnenshein emphasized that rejecting options on GBTC would “unfairly discriminate” against its shareholders. Sonnenshein pointed out that the SEC had previously approved options on ETFs linked to Bitcoin futures, highlighting the inconsistency in treating options on derivatives differently from those on the underlying asset. 

Despite Grayscale’s plea, the SEC has decided to extend the period for deciding whether to approve, disapprove, or institute proceedings for listing and trading options on spot Bitcoin ETFs. 

The SEC cited the need for sufficient time to consider the proposed rule change. As per a recent filing, the SEC has designated April 24, 2024, as the deadline to either approve or disapprove the proposed rule change or initiate proceedings to determine whether to disapprove it.

In response to the SEC’s extension, Grayscale expressed its viewpoint, stating that if investing in options for shares of products holding derivatives of an asset is deemed acceptable, then investing in options for shares of products holding the asset itself should be equally acceptable. 

Grayscale’s response highlights the inconsistency in the treatment of investment products related to Bitcoin and the need for regulatory clarity in cryptocurrency.

Featured image from Shutterstock, chart from TradingView.com