Will the private offering dilute existing shareholders if and when the notes are converted into common equity?

Short answer:

Yes. If the convertible senior notes that Coinbase is offering are eventually converted into common stock, the conversion will increase the number of shares outstanding and therefore dilute the ownership percentage of existing shareholders. The magnitude of the dilution will depend on the conversion price (i.e., how many shares each dollar of principal can be turned into) and on how many of the $2 billion of notes are actually exercised.

Why conversion can dilute shareholders

1. Nature of the instrument – A convertible senior note is a debt instrument that gives the holder the right (but not the obligation) to exchange the principal (plus any accrued interest) for a predetermined number of shares of the issuer’s common stock.
   
2. Conversion creates new shares – When a note is converted, the issuer issues new common shares to the note holder in exchange for the debt. The total pool of shares therefore expands.
   
3. Ownership is a percentage of the total – Existing shareholders own a fixed percentage of the total outstanding shares. Adding new shares reduces each existing shareholder’s percentage of ownership (and typically the earnings‑per‑share and voting power associated with that ownership).
   

How the dilution would happen in Coinbase’s case

Given the above:

• When conversion occurs: The notes’ principal (plus any accrued interest) will be swapped for a predetermined number of COIN shares.
  
• Effect on share count: The issuance of those new shares increases the total shares outstanding, which reduces the percentage ownership of each existing shareholder – i.e., dilution.
  

Factors that determine how large the dilution could be

1. Conversion price / ratio

   • The conversion price (or its inverse, the conversion ratio) is set in the offering documents. It determines how many shares each $1 of principal is worth. A higher conversion price (fewer shares per dollar) yields less dilution; a lower conversion price (more shares per dollar) yields more dilution.

2. Amount of notes actually converted

   • Not all $2 billion may be converted. Holders could keep the notes to maturity, sell them on the secondary market, or retire them in cash. Only the portion that is actually converted creates dilution.

3. Timing of conversion

   • If conversion occurs after the company has already issued a large number of shares (e.g., via an IPO, secondary offerings, employee stock options, etc.), the relative dilution could be smaller because the denominator (total shares) is larger.

4. Other anti‑dilution provisions

   • Some convertible notes include “anti‑dilution” clauses that can adjust the conversion price if the company issues new equity at a lower price. That could increase the number of shares that the notes convert into, increasing dilution further. The news excerpt does not specify such provisions.

5. Potential redemption or cash‑pay

   • The indenture may allow the company to “call” or “redeem” the notes for cash instead of conversion, which would avoid dilution. However, the default/most common scenario for convertible notes is that the holder chooses conversion when it is financially beneficial.

Practical implications for a Coinbase investor

Bottom‑line answer to the question

Yes, the private offering of $2 billion in convertible senior notes can dilute existing shareholders when (and if) the notes are eventually converted into common equity. The extent of the dilution will be determined by the conversion price/rate set in the note agreement, the number of notes actually converted, and any anti‑dilution or redemption features in the offering documents.

If you are an existing shareholder or a prospective investor, it is advisable to review the full indenture or prospectus for the 2029 and 2032 notes once they are filed with the SEC (e.g., the Form 8‑K or S‑1 filing) to see the exact conversion terms, any redemption rights, and any protective clauses that might affect the scale and timing of any dilution.