2022 has been the year of cryptogeddon, whether it was major NFT rug pulls, the implosion of DeFi Ponzi schemes, or major crypto firms, like FTX, that were riddled with scandal and insolvency.
Based on the signs we're seeing in the broader market, there may be more dominoes to fall. Particularly if crypto continues to weaken. Let's take a look at three of the larger publicly traded companies that have very high exposure to crypto -- and in particular how their bonds are trading.
Coinbase (COIN) bonds are trading at distressed prices and yields, with the last trade at 59.48%, implying a yield of 13.699%. The coupon rate on this bond when it was issued was 3.375%. The company has a market capitalization of $13B, making it the biggest publicly traded company that is entirely crypto-focused.
Moody's has a Ba2 rating as of June 23rd, 2022, but the way that this bond has traded since then suggests that the bond market is beginning to suspect that there's something wrong. After all, the crypto industry is having a rather challenging time of late, and the FTX fiasco has only added pressure to further scrutinize every player in the space.
MicroStrategy (MSTR) bonds are also looking quite shaky, trading down to $64.16 with a yield of 16.2% on a 0.75% coupon due in late 2025. The bond fell from trading as high as $170.72 in December of 2021.
I wasn't able to find any ratings on this debt. I suspect how it's trading tells us all we need to know about the market's view. After all, MSTR is basically a leveraged bitcoin fund with a bit of an actual company inside of it. Microstrategy has a $1.9B market capitalization.
Marathon Digital (MARA) bonds are beyond distressed, and sinking into territory that seems to suggest the market believes that this company has little chance of repaying this debt issuance. Marathon's bonds last traded at $26 with an implied yield of 38.909% on what was meant to be a 1% coupon.
This debt tranche also doesn't have any ratings that I was able to find, but the company itself holds over 11,000 bitcoins, so the recent downward fluctuations in price have caused material harm to their holdings. The company has a $1.1B market capitalization.
Risk management is important in any market, but particularly a market like crypto where a lot of price discovery is driven by extreme emotion in a rather illiquid trading environment where there's often high levels of leverage employed.
The players in this space may continue to be vulnerable, particularly if there are any more negative event catalysts in the space or broader markets. Caution may be warranted.