Coinbase’s CEO assured investors this week there was no question of bankruptcy — but its junk bonds are now worth almost as little as Russia’s

Chief executive Brian Armstrong assured investors this week that was no risk of bankruptcy after the company warned users they might lose access to their crypto assets if the company ever went bust, yet confidence in the business has slipped, as evidenced by the drop in value of its stock and its junk bonds.

Cryptocurrency markets are highly unpredictable, and Coinbase’s fortunes are tied closely to them.

“Coinbase has said that it is willing to lose up to $500 million in EBITDA per year, making the timing for a return to positive earnings unclear,” research firm Morningstar said in a recent note.

“We generally caution against reading too deeply into Coinbase’s quarterly results, since market volatility can rise or fall in short order. However, it must be recognized that Coinbase’s cost structure has grown dramatically in just a few quarters, leaving the firm unprofitable despite its underlying asset class still far above 2020 levels,” Morningstar said.

According to the Financial Industry Regulatory Authority, Coinbase’s 10-year bond now yields around 9.9%, up from around 3.62% when it sold the debt in September. This compares with a yield of around 3.00% on the benchmark 10-year US Treasury note, marking a gap of well over 600 basis points, compared with closer to 200 basis points when Coinbase issued the debt.

The yield on Coinbase’s bonds, which carry a speculative grade, or “junk” rating, is almost as high as those on the 10-year government debt of Russia, which has spent months on the brink of default after Western nations cut Moscow out of the global financial system following the invasion of Ukraine. Russian 10-year bonds are yielding around 10.2%, up from closer to 7% a year ago.

The price of Coinbase’s junk bonds has been on a steep decline ever since the company released its Q1 results that missed analyst estimates for the first-quarter of the year, which sent its stock falling by as much as 28% that day.

What soon followed was a frenzy among Coinbase users, after the earnings contained a warning of the risk to their crypto holdings in the unlikely event of Coinbase’s bankruptcy. People subsequently urged users to move their crypto assets to hardware wallets, or physical storage devices as a result.

“Because custodial ly held crypto assets may be considered to be the property of a bankruptcy estate, in the event of a bankruptcy, the crypto assets we hold in custody on behalf of our customers could be subject to bankruptcy proceedings and such customers could be treated as our general unsecured creditors,” the company said.

In a Twitter thread, however, Armstrong stressed the company was at no risk of insolvency and that the risk disclosure was only mentioned in response to rules recently set by the markets regulator.

While there is some nervousness around Coinbase, some investors, like tech-stock picker Cathie Wood, have seen opportunities. Disclosures from her ARK Invest firm show Wood has bought almost $45 million in Coinbase shares this week alone, as the stock hit record lows.