Coinbase Follows MicroStrategy's Playbook, Offers $1B in Convertible Notes

Coinbase is raising $1 billion through the sale of convertible notes, in a similar play to Michael Saylor's MicroStrategy.

The listed crypto exchange announced on Tuesday that it will offer the unsecured convertible senior notes via a private offering, which can be turned into shares of the company in 2030.

By raising funds through is method, Coinbase avoids selling equity and diluting the ownership interest of existing shareholders.

Additionally, Coinbase is offering "negotiated capped call transactions" to serve as a hedge to prevent dilution of the conversion notes.

"The capped call transactions will cover, subject to customary adjustments, the number of shares of Coinbase's Class A common stock that will initially underlie the notes," Coinbase explained.

Proceeds will be used to repay debt, and to pay for potential capped call transactions, and may even "use a portion of the net proceeds to make investments in and acquisitions of other companies, products or technologies."

Coinbase's stock price is up more than 330% over the year as Bitcoin continues to set new price records.

MicroStrategy has been implementing a similar approach over the past few years. The firm now holds 205,000 Bitcoin, worth $15 billion, funded mainly by the sale of over $2 billion in convertible notes.

This month, MicroStrategy upped its convertible debt offering by $100 million to a total of $700 million to buy more Bitcoin. The firm will raise the $700 million via the sale of convertible senior notes at an open interest rate of 0.625% per year.

Yesterday, MicroStrategy revealed it bought another 12,000 BTC for $821.7 million, marking its second-largest purchase.

Coinbase has also launched a legal challenge against the U.S. Securities and Exchange Commission (SEC). The action, filed in the U.S. Court of Appeals for the Third Circuit, stems from the SEC's December rejection of Coinbase's formal petition for rulemaking.

This petition sought to clarify the regulatory framework governing the crypto industry, a request that Coinbase contends was dismissed without sufficient explanation or justification. The exchange accuses the SEC of overstepping its authority by applying traditional securities law to crypto assets without adapting its regulations to the unique characteristics of these digital assets.