Marex Solutions Issues Coinbase-Linked Structured Product Offering a 40% Coupon
Marex Solutions, a derivatives-focused division of the London-based financial services provider Marex, unveiled a Coinbase (COIN) linked structured product that offers enhanced coupons in return for only partially protecting capital risk on the cryptocurrency exchange's shares.
The six-month barrier reverse convertible (BRC) note issued Wednesday offers a guaranteed annual 40% coupon paid monthly, providing holders with regular cash flow.
It also has a predefined "barrier" at 66% of the Nasdaq-listed stock's price – $37.8 on the issue date. As long as the shares stay above $25 during the term, Marex Solutions will repay the invested amount in full at expiry. If the barrier is hit or breached, the partial downside protection disappears, and the holder will be allocated COIN shares at $25, exposing them to market vicissitudes.
One drawback is that the holder will miss out on potential COIN rallies. That's because the note is auto-callable – by the end of the month, if COIN shares trade higher than on the start date, Marex Solutions will return the initial capital invested with the coupon and the product is redeemed.
Barrier reverse convertibles are popular in traditional finance and are usually chosen when the underlying asset is expected to consolidate or move only slightly higher.
Marex's issue of the BRC note tied to COIN shows high-yielding structured products remain in demand despite the crypto bear market. COIN dropped nearly 86% to $35 last year as a result of the Federal Reserve's monetary tightening and collapse of several crypto giants, including stablecoin issuer Terra and rival crypto exchange FTX. The narrative, however, is that the crisis will bode well for Coinbase.
"Many investors have the view that Coinbase will be one of the survivors, that they could gain a lot of market by positioning themselves as the anti-FTX, being publicly traded, fully U.S. regulated, and offering a reliable corporate and custody service," Ilan Solot, co-head of digital assets at Marex Solutions, said in an email.
"With COIN shares so volatile and so much near-term uncertainly, a lot of investors prefer to express their view via structured products where they can get an attractive guaranteed coupon plus a lot of downside protection," Solot said.
A trader investing $1 million in the BRC note would receive a guaranteed $33,333 each month. If the auto call feature is triggered, the trader receives the initial capital of $1 million and the coupon earned, and the product is redeemed.
If, after six months, the auto call has not triggered, the holder collects the total coupon of $200,000 irrespective of COIN's share price. Moreover, if the share price is above $25, the holder also gets back their initial $1 million capital.
If, however, the price is below $25, the initial capital invested is at risk. That's because the holder is allocated $1 million worth of shares at $25 or at a value higher than the prevailing market price, exposing them to price movements in the market.
"Taking coupon payments into account, COIN shares has to fall from current price of $37.88 to around $20 (-47%) at the end of 6-month before the client starts to lose any money," Solot noted.