Topline
Though bitcoin prices have plunged to the lowest level in two years, Ark Invest, the investment firm helmed by high-profile stock picker Cathie Wood, has doubled down on the struggling sector in the days since befallen crypto exchange FTX filed for bankruptcy—defying many analysts by buying more than $60 million in crypto-related stocks as the firm insists its conviction in the space is as high as ever.
Cathie Wood of Ark Investments photographed in September 2020 by Eli Warren for Forbes.
Key Facts
According to Ark’s daily transaction reports, three of the firm’s funds, including its flagship Ark Innovation ETF, have invested $62.7 million in shares of exchange Coinbase, crypto bank Silvergate and the Grayscale Bitcoin Trust since November 11—the day FTX announced its sudden liquidity crisis this month forced the firm to undergo bankruptcy proceedings.
Ark’s investment in the Grayscale Bitcoin Trust, which tracks the price of the world’s largest cryptocurrency but doesn’t force investors to buy or store it directly, marks the firm’s first in the fund since July 2021—right after the price of bitcoin collapsed 45% over a period of two months.
Ark did not immediately respond to Forbes‘ request for comment; however, in a Monday note, Ark research director Frank Downing acknowledged contagion has spread in response to the FTX bankruptcy, but he said Ark’s “conviction in decentralized and transparent public blockchains is as strong as ever.”
The transactions come as the price of bitcoin fell to a two-year low of less than $15,600 on Monday—pushing losses to more than 20% during the FTX turmoil, according to CoinMarketCap.
Despite Ark’s growing bullishness, several analysts haven’t been so optimistic about the crypto space: In a Friday note, Mizuho analyst Dan Dolev noted Coinbase’s daily trading volumes have fallen about 35% below their yearly averages—”suggesting worn out consumers who appear uninterested” in the “deteriorating” crypto industry.
The FTX collapse “diminished confidence in the crypto ecosystem” and has created new headwinds “that warrant additional caution” when investing in stocks like Coinbase, Bank of America’s Jason Kupferberg wrote in a note on Friday, adding he worries “contagion risk” could linger as some users sell their assets to “leave crypto entirely.”
Contra
Despite skyrocketing nearly 150% in 2020, Ark’s Innovation ETF fell 24% last year and has cratered 59% in 2022. To compare, the S&P 500 is down 30% this year. In addition to crypto stocks, Arks other big purchases this month include biotech Ginkgo and Tesla, which are down 76% and 58% this year, respectively.
Tangent
In JPMorgan’s latest client survey, about 82% of respondents said they expect crypto prices will fall at least another 10% following the FTX collapse, including about 28% who said prices will crash at least 50%. A majority of respondents (62%) believe the crypto winter will last at least one more year.
Key Background
Fears of global recession and the worst inflation in more than 40 years have wreaked havoc on the nascent cryptocurrency market this year—forcing once high-flying firms into bankruptcy and investors into panic-selling mode. The turmoil has claimed more than $2 trillion in market value over the past year, and the situation has only worsened this month with the sudden collapse of FTX, one of the world’s largest crypto exchanges. The unraveling has since spread to other firms, with crypto lender Genesis, for example, suspending withdrawals last week and blaming FTX for creating “unprecedented market turmoil.” On Monday, Genesis, which had some $2.8 billion in loan volume at the end of last quarter, reportedly warned investors it could face bankruptcy if its efforts to raise fresh capital fail.
Further Reading
With A New CEO, An Adult Has Arrived To Clean Up The FTX Mess (Forbes)
Source: https://www.forbes.com/sites/jonathanponciano/2022/11/22/cathie-woods-ark-buys-60-million-in-bitcoin-crypto-stocks-after-ftx-collapse-even-as-analysts-fear-contagion-risk/