Before I get started, I would like to thank everyone who read my previous article for their kind feedback. Seeing my work being shared by Coinmetro was also a great feeling and a proud moment for me.
This support motivated me to write another article about a topic that will soon become relevant for a lot of clients that have supported Coinmetro over the last few years:
The maturity of the Coinmetro Bonds is coming closer and closer by the day. That means that there is an important decision to be made within the next few days:
Equity in Coinmetro or XCM - which one should I choose?
You might be in the same boat as me: 2 years ago, I decided to invest in Coinmetro’s bond offering. As an ICO participant, it was especially enticing for me to capitalize on this opportunity to earn 12% APR in interest payments.
Now that the time has come to make a decision, I am torn between actually owning a part of my favourite exchange or adding more XCM to my portfolio.
That is why I am also writing this article partially for myself to gain some clarity on this matter.
But this article may not only be interesting for the long-term supporters of Coinmetro, but also for anyone who discovered Coinmetro more recently. After all, the Coinmetro Bonds are a good example to illustrate how a tech start-up can attract more capital from sources outside of Angel or VC investors as “the usual suspects”.
With the bond offering, Coinmetro chose a community-based approach to attract further capital that has turned into a great success story.
The Bond Offer
Before I analyse the Pros and Cons between equity and XCM, let’s take a quick look at the history and details of Coinmetro’s bond offering.
The bonds were offered at the start of 2021 and were priced at €10 per bond. Within two months, 656 investors took part in that offer and all bonds were sold out.
This allowed Coinmetro to raise €2.5 million and serves as a perfect example of successful crowdfunding through the power of community.
These bonds Coinmetro offered fall within the category of so called “Corporate Bonds” with the specialty that the Coinmetro bonds are also “Convertible Bonds” upon maturity.
Puh. A lot of financial legalese, right?
But don’t worry the meaning behind those terms actually is not too complicated:
Corporate bonds are simply an instrument that allows companies to raise capital. When an investor buys a Coinmetro Bond, they are essentially lending money to Coinmetro. In exchange, Coinmetro promises to pay the investor regular interest payments of up to 12% (also called "coupons") and to repay the principal amount of the bond once it matures.
In Coinmetro’s case, the bonds reach maturity at the end of January 2023.
As you can see, this is a pretty straight-forward process.
The more complicated part that motivated me to write this article is the added feature of convertibility:
Convertibility means that upon maturity, anyone that holds Coinmetro Bonds has the option to choose between converting their bonds into shares of Coinmetro or into XCM at a predetermined rate.
This means that for any bond unit purchased, you may choose between receiving 50 XCM or 1 Share of Coinmetro Group OÜ.
Now that we know all the necessary details, it’s time to analyse the advantages and disadvantages of each respective option:
Option A: Equity
The first option is to become a shareholder of Coinmetro Group OÜ.
The shares that the Coinmetro Bonds are converted into are so called “Class B” shares.
What does that mean?
In our case, we need to distinguish between Class A shares and the Class B shares bond holders would receive.
Just like Class A shares, Class B shares also represent ownership of a part of Coinmetro Group OÜ. This entitles shareholders to future dividends and other benefits that typically come with owning a part of a company.
The main difference between the two are the voting rights that they come with.
The Class B shares do not grant any voting rights to their holders. This means that only Class A shareholders (i.e. the founders and early investors of Coinmetro) have the right to vote on matters related to Coinmetro Group OÜ. This includes decisions such as the election of the board of directors and any proposed changes to the company's bylaws.
The reasoning behind Coinmetro’s decision to limit voting rights to Class A shares ultimately comes down to ensuring that the decisionmaking and day-to-day business of the exchange remains as seamless as possible.
If Coinmetro were to also give Class A shares to bond holders, the exchange’s business would be hindered by the fact that certain actions would require the approval of every single Class A share holder.
This already has proven to be quite cumbersome in the past and would become even more complicated by introducing up to 656 new Class A shareholders to the company.
Advantages of Becoming a Shareholder:
1) The shares bond holders would receive represent securities. Securities are more traditional financial instruments compared to Digital Assets such as utility tokens like XCM. Securities generally have the benefit of a well-established regulatory framework that requires the issuing company to protect its shareholders. Shareholders are also entitled to regular disclosures concerning the company’s operations and financial insights. This information will be provided in regular shareholder meetings.
In Coinmetro’s case however, this argument bears a little less weight than usual since the company has always been fully committed to regulatory compliance and transparency to its clients (regardless of them holding any shares in the company or not).
That being said, at the end of the day the fiduciary duty of Coinmetro towards its shareholders may still take precedent over the fiduciary duty towards XCM holders, simply by virtue of being imposed by law rather than being self-imposed on a voluntary basis.
2) Another point to consider would be that no one knows if and when there will be another chance to acquire shares in Coinmetro Group OÜ. As it stands, the next funding rounds for Coinmetro will be closed to the public and will only be available to Angel Investors or Venture Capital firms.
Having the chance to hold shares in a company as promising as Coinmetro at such an early stage is quite rare for retail investors and usually only reserved to high net worth individuals or investment funds.
3) Thirdly, if we compare the company valuation back in 2021 when the bonds were issued (€50 million) to today (€180 million), a paper-gain of 360% has been achieved.
This is an even stronger performance than XCM with “only” 300% paper-gains.
Option B: XCM
The other option that is open to bond holders is to convert their bonds into XCM.
Usually, the second option for convertible bonds is to receive the initial investment plus owed interest back in Fiat currency. Paying the bond holders back in XCM is Coinmetro’s substitute for this and gives the bond holders the opportunity for a faster “Cash-out”.
Advantages of Choosing XCM:
1) The first advantage of XCM is actually quite unexpected - at least when compared to the usual risk profiles of stocks and Digital Assets.
As opposed to the shares of Coinmetro, XCM already allows you to earn yield through XCM staking.
Traditionally, when comparing stocks to Digital Assets, a point that is frequently brought up in favour of owning shares in a company is that they generate yield through dividend pay-outs. This makes them a safer investment in the eyes of many.
However, when it comes to Coinmetro we must bear in mind that we are talking about a young fintech company that is first and foremost focused on growing the business instead of sharing any profits. This means that over the next years, there should be no expectations of any dividends being paid out to shareholders, as any income will likely be directly re-invested into further growth.
As a consequence, over the short to medium term XCM will have the advantage of offering a passive income opportunity compared to the shares.
2) As mentioned before, the option to redeem the bonds for XCM is meant to offer an easier “Cash-out” for bond holders compared to owning shares. After redemption, the received XCM could be sold on Coinmetro’s XCM market once liquidity improves or alternatively on a decentralised market outside of Coinmetro. The option to cash-out now may however lead to a short-term disadvantage, as the added sell pressure due to additional XCM being released to the market may have a negative effect on the XCM price.
On the other hand, this introduced volatility may also prove to be a short-term opportunity for anyone that is looking for a trading setup.
It is also within the realm of possibilities that Coinmetro may offer a special staking promotion with increased staking rates to anyone that went for the option to convert their bonds into XCM. This could limit the additional sell pressure and even improve the current advantage XCM has over shares when it comes to passive income.
3) Another point to consider is how XCM is embedded in all services that Coinmetro offers as an exchange. I will soon write a separate article about what makes XCM the best exchange utility token in all of crypto, but to put it simple:
XCM is tied into any transaction happening on Coinmetro. In turn, this means that the more trading volume Coinmetro has as an exchange, the stronger the buying pressure for XCM will become.
Consequently, it is very likely that the price action of XCM will experience the positive effects of any growth of Coinmetro’s business even before the share price catches up.
My Decision
After writing my thoughts down, I now know which arguments I need to weigh against each other to reach my decision.
All in all, I think it comes down to the following: The shares can be considered as a more traditional way to gain exposure to Coinmetro’s business and are especially interesting to those that are willing to hold that position for the long term.
Opting for XCM on the other hand also provides exposure to Coinmetro’s future growth but may offer some additional options in the short to medium term.
After carefully considering all of the above, I have reached the following conclusion:
I do not just want to simply benefit from Coinmetro’s business growing through XCM – I want to actually own a part of it on top of that.
Personally, I think this decision would have been even harder for me if I did not own some XCM already. Oddly enough, owning shares of Coinmetro in addition to the XCM I already own makes me feel like my portfolio is more diversified, even if objectively it is just a second way to invest in the same company.
Keep in mind though that this is just my very own personal decision; Going for XCM definitely is not a bad call either.
In all honesty, I would not mind if there was a third option for anyone that is still being undecided: Going 50:50 between equity and XCM 😁
Now I am interested to hear your thoughts on the matter.
What option are you going for?
Feel free to let me know.