Cathie Wood’s Ark Invest Continues to Build COIN Position for “Turbulent Times”

Star investor Cathie Wood is still bullish on crypto exchange Coinbase’s ability to outlast a bearish cryptocurrency market, as her ARK Innovation ETF (ARKK) bought another 33,756 shares of COIN on Tuesday of this week, followed by an additional purchase of 52,813 on Thursday.

The purchase means that Wood holds approximately 8.75 million shares in three of her exchange-traded funds (ETFs); ARKK, ARKW, and ARKF — representing 3.42% of the firm’s total investments. These latest purchases come after Wood bought 172,276 shares of COIN on Jan. 5 for her ARKW and ARKF funds, adding to an $18 million stake she acquired in Dec. 2022.

Wood said the tech companies in her innovation-focused portfolio are massively undervalued and that she believes her fund’s recent sell-off is short-lived. She added that ARKK ETF democratizes investing in innovation-growth stocks, making them more affordable for retail investors.

The price of COIN has been recording a bounce in 2023, to trade at $47.55, up from $31.50 late in Dec. 2022 but down from nearly $243 hit on the day of its listing. This uptrend has been in line with Bitcoin’s price surge past $19,000 for the first time since early November.

This week, Coinbase said it would cut about 20% of its workforce in line with its restructuring plan, marking the third round of layoffs since last year. The exchange cut more than 60 jobs in November after slashing 18% of its workforce in June.

“We also saw the fallout from unscrupulous actors in the industry, and there could still be further contagion,” said Coinbase CEO Brian Armstrong on Tuesday.

Focusing on Disruptive Innovation

Cathie Wood is an American businesswoman and the founder and CEO of ARK Investment Management, a firm that specializes in investing in disruptive innovation. Wood is a highly respected figure in the investment community, and her views on the future of technology are widely followed.

She is a strong advocate for the power of technology to change the world for the better, and her firm has made significant investments in companies like Tesla, Netflix, and Amazon.

Wood’s online appeal has particularly attracted younger investors, which has helped her firm go from managing a little more than $10 million to over $40 billion, making her ARK Innovation Fund one of the largest of its kind in this investing segment.

Her fund saw exponential growth early in the 2020 pandemic, as Wood went full-steam ahead with tech companies focused on growth while increasing the fund’s cryptocurrency exposure. Wood, a devout Christian, credits the inspiration for starting her firm’s nine ETFs, which anyone could buy as stock, making them available to ordinary investors in a way hedge funds were not, to the Holy Spirit’s divine call.

Wood has spent 45 years on Wall Street and has more than 30 years of experience in portfolio management. She founded ARK Invest in 2014 to focus exclusively on disruptive innovation. This fund primarily invests in the equity securities of companies around the globe engaged in developing technology-enabled products or services related to fintech innovations, genomic innovations, industrial innovations, and next-generation internet innovations that hold the potential to transform how the world works.

ARK is uncovering companies it believes are leading the way in and benefiting from inter-industry innovations through its open research process. The firm is grounded in over 40 years of expertise in identifying and investing in disruptive innovations that are changing how the world works and providing tremendous returns while industries are transformed.

Fall from the Grace

Cathie Wood and ARK Invest both have captured plenty of eyes with high returns in the past five years on their innovative-focused theme-driven ETFs. The ARK Innovation ETF, as well as a few others from Wood’s portfolio, gained many investors in recent years, with the technology-focused funds beating out benchmark indexes like Nasdaq Composite and competing topical ETFs through 2022.

The firm’s success was built on its disruptive innovation strategy, which tends to target companies that are either rapidly growing in emerging industries or developing next-generation technologies. With the world economy experiencing one of the largest tech transitions in history, it’s pushing out industry incumbents and creating new leaders, enablers, and beneficiaries from disruptive innovation.

In the first few years of its launch, the disruptive innovation theme in ARK was very much on-trend, with multiple funds posting 100%+ returns during 2020 — ARKK and ARKW around 150%, while ARKF at just over 100%.

The flagship fund, ARK Innovation ETF’s incredible returns of 150% — far more than the 16% S&P 500 returns — occurred when the shutdowns led to steep gains for several tech companies that Wood had been betting on. Coinbase has also seen its shares hit record highs during the pandemic, making ARK Investments one of the more profitable funds in the space.

Wood’s flagship fund holds about 30 stocks, with Tesla and Coinbase making up the largest chunks of its portfolio. Tesla was listed as one of the two largest positions of the portfolio for ARK Innovation ETF as recently as December, with the ETF holding 3.1 million shares in Tesla, valued at $555.6 million, representing an 8.03% weighting in its portfolio.

However, the ARK Innovation ETF fell from grace among growth investors because of the mistimed investments made by the fund during the COVID-19 pandemic, which saw valuations for innovative startups and tech companies soar, then plunge in 2022.

In 2022, the ARK Innovation ETF was repeatedly, and seemingly blindly, doubling down on stocks that fell out of favor, including Coinbase, video-conferencing platform Zoom Video Communications, eCommerce firm Shopify, streaming firm Roku, and fintech startup Block (formerly known as Square).

Investors listening to a buy-the-dip rally have been dumping cash into the ARK each of the first five months of 2022 — a net $1.89 billion — while markets have been in freefall, much like Wood’s funds’ performance.

Currently trading at $35.49, the ARK Innovation ETF (ARKK) has lost over 74% of its value from its peak in January 2021.

The fund is particularly vulnerable to further falls in technology valuations because of its overweight in highly-multiple stocks. In terms of industry exposure, the investment portfolio of the ARK Innovation ETF has an overweight of information technology (33%), healthcare (32%), and communications services (16%).

An Opportunity for Turbulent Times

While the markets worldwide experience a downturn, Wood made a commentary on current market conditions in her letter on Jan. 12, stating: “I have never seen markets this dislocated.”

With the money supply declining, commodity prices deteriorating, bloated inventories unwinding, and innovation disrupting the traditional world order, she noted all this is pointing toward lower inflation, perhaps even deflation.

“I believe that the current market dislocation presents an opportunity for innovation strategies to thrive when equity markets recover. Fear of the future is palpable, but crises can create opportunities,” said Wood.

Among game-changing innovations that the equity market largely ignored in 2022, Wood listed ChatGPT, Connected TV, Social Commerce, Electric Vehicles, Autonomous Driving, Autonomous Logistics, 3D printing, Space Exploration, Industrial Robots, Energy Demand, CRISPR Gene Editing, and Molecular Diagnostic Testing.

Wood also counted digital wallets and blockchain technology among these game-changing innovations that she says “solves problems and has historically gained share during turbulent times.”

Despite the much-publicized implosion of globally revered digital assets exchange FTX, underlying public blockchains like Bitcoin and Ethereum didn’t stop processing transactions, highlighting that their transparent, decentralized, and auditable ledgers could solve the fraud and mismanagement associated with centralized, opaque institutions, said Wood on Thursday.

Additionally, after the FTX collapse, the share of trading volume on DEXs rose 37% from 8.35% to 11.44%. The fallout from Terra/Luna’s and FTX’s collapses further propelled Coinbase’s share of fiat-based exchange volume by 18 percentage points, from 22% in June to 40% in December.

Meanwhile, digital wallets allow users to transact on their smartphones, replacing cash and credit cards. She added that they overtook cash as the top transaction method for offline commerce in 2020 and accounted for ~50% of global online commerce volume in 2021.