Ark Invest's Sells, Holds Coinbase Shares: What's Going on?

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Ark Invest, steered by the acclaimed Cathie Wood, recently executed a notable shift in its investment strategy, marked by the sale of an additional 26,743 shares of Coinbase Global Inc. This transaction, valued at approximately $4.1 million, occurred on Thursday, following a substantial sale of Coinbase shares worth $25.3 million the previous day. This pattern of sales highlights Ark Invest’s strategic adjustments within its portfolio, particularly in the context of the company’s ARK Innovation ETF (ARKK), which is known for its dynamic and forward-thinking investment approach.

It also hints at the possibility of a major correction in Bitcoin, despite all the ebullient enthusiasm that has grabbed the minds of the retail investors, due to the recent ETF hype. After all, smart money is usually on the right side of the trade.

The ARKK has been actively involved in the market, not only offloading Coinbase shares but also acquiring new stakes in other companies. Notably, on the same day as the latest Coinbase sale, the ETF invested in 132,955 shares of Recursion Pharmaceuticals, a transaction valued at around $1.48 million. These moves are part of a broader trend for Ark Invest’s ETFs, which have collectively divested over $200 million in Coinbase shares in recent weeks. Such significant sales underscore the active management style of Ark Invest and its willingness to adjust holdings in response to market dynamics and internal investment strategies.

A Big Win for Coinbase and ARKK

Coinbase’s impressive rally in the final three months of 2023, where its stock value soared by over 130%, significantly impacted its representation in the ARKK portfolio. This surge took Coinbase’s weighting in the ETF above the targeted maximum threshold of 10%. Despite the recent sales, Coinbase still forms a substantial part of ARKK’s investments, holding a 10.34% stake, which is valued at more than $872.5 million.

The rise in Coinbase’s stock, which closed up 2.21% at $155.6 on Thursday, reflects a broader trend of over 360% growth over the past year. This growth trajectory has been influenced by several factors, including the company’s decision to align with regulatory guidelines in the UK, requiring its users to complete a risk-acknowledgment form. Such compliance measures are part of Coinbase’s broader strategy to maintain a secure, reliable, and compliant platform for cryptocurrency trading, as emphasized by CEO Brian Armstrong.

In addition to Coinbase, Ark Invest has a significant portion of its portfolio, more than 15%, invested in Coinbase Global and UiPath. Cathie Wood, the visionary behind Ark Invest, has gained recognition for her unconventional approach to asset management, focusing on long-term capital appreciation through investments in disruptive technology firms. Ark’s portfolio, which encompasses six thematic index funds, is heavily invested in areas such as automation, blockchain, fintech, and robotics, with a collective investment of $16.5 billion across 122 companies. The prominence of Coinbase Global and UiPath in Ark’s portfolio underscores the firm’s confidence in these companies’ potential for sustained growth and innovation.

What will 2024 bring for bitcoin? Expanded usage? Improved infrastructure? A spot bitcoin ETF? On a new Bitcoin Brainstorm, @bitcoinpark_'s @bitkite, ARK's @CathieDWood and @yassineARK, and leaders in the bitcoin space discuss all this and more. Listen! https://t.co/vwdr5HdtaM

— ARK Invest (@ARKInvest) January 5, 2024

Ark’s flagship ETF, the Ark Innovation ETF, has achieved remarkable success since its inception in 2014, outperforming the S&P 500 by about 20 percentage points. This success is noteworthy, especially considering that the fund is currently trading 67% below its peak value. Such performance is a testament to Ark’s investment strategy, which focuses on identifying and capitalizing on emerging technologies and market trends.

Coinbase Global: 10.34% of Ark’s portfolio

Coinbase, as a cornerstone of Ark’s portfolio, offers a range of services including cryptocurrency exchange and wallet services. It enables both retail and institutional investors to engage in the trading, staking, and storage of various crypto assets, and to interact with decentralized applications across different blockchains. The company’s revenue streams primarily consist of transaction fees and interest earned on USDC reserves, through an agreement with Circle, the stablecoin’s issuer. This revenue model makes Coinbase’s business closely tied to market sentiment and interest rate fluctuations.

Under Armstrong’s leadership, Coinbase has prioritized strategic growth, focusing on reliability and reputation. This approach has established Coinbase as the most popular cryptocurrency exchange in the U.S. and the largest in terms of trading volume. The company’s third-quarter financial results were solid, with a 14% increase in sales to $674 million, driven by a balanced mix of transaction revenue and subscription services. The increase in subscription and services revenue, particularly interest income on USDC reserves, has been a key growth driver. During this period, Coinbase also made significant strides in international expansion, entering new markets like Canada and registering as a cryptocurrency exchange with the Bank of Spain, thereby increasing its global market opportunity.

UiPath: 6.4% of Ark’s portfolio

UiPath, another significant holding in Ark’s portfolio, specializes in business automation software, blending robotic process automation with artificial intelligence. The company’s platform focuses on analyzing tasks and processes for automation potential, building software robots for automation, and managing these robots across business operations. UiPath’s financial performance in the third quarter was strong, with a 24% increase in revenue to $326 million and a significant rise in non-GAAP net income. The demand for RPA and AI solutions is expected to drive substantial market growth, and UiPath is positioning itself to capitalize on this trend with innovative AI products like Autopilot, a generative AI assistant.

Follow the Path of Smart Money?

Ark Invest’s recent portfolio adjustments, particularly the divestment in Coinbase shares and the acquisition of stakes in companies like Recursion Pharmaceuticals and UiPath, reflect a strategic approach to investment management. Led by Cathie Wood, Ark Invest remains focused on long-term capital appreciation through investments in disruptive technologies. The firm’s confidence in companies like Coinbase and UiPath, as evidenced by their significant portfolio allocations, indicates a strong belief in the potential of these companies to drive innovation and growth in their respective fields.