Coinbase’s Troubles Are Too Much for Cathie Wood as ARK Dumps the Stock

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Investors in

Coinbase Global

have been taken on a painfully vertical ride this year, with shares in the cryptocurrency exchange plunging amid a business slowdown, stock market reckoning, and regulatory pressures.

Now, even one of the bravest riders of financial roller coasters is looking to get off.

Cathie Wood’s ARK Investment Management, once firmly bullish on

Coinbase

(ticker: COIN), sold the stock across three of its exchange-traded funds (ETFs) on Tuesday. It was the first time ARK sold Coinbase all year—on the same day that the shares shed 21%. The recent declines may be just too much to stomach.

Coinbase has lost 79% of its market value this year in a dramatic selloff that has brought the stock down to around $53. That’s just a fraction of their $381 debut when they started trading in April 2021.

Also read: Why Coinbase and Robinhood Stockholders Have Another Reason to Worry

It’s not the outcome that Cathie Wood would have hoped. The highflying growth investor’s funds walloped the market in 2020 but have since underperformed dramatically. Her flagship

ARK Innovation ETF
(ARKK) is down 55% this year.

Through ARKK as well as the

ARK Next Generation Internet ETF
(ARKW) and

ARK Fintech Innovation ETF
(ARKF), Wood’s funds have consistently snapped up shares in Coinbase since it went public.

As of Monday, the investment group owned 9.1 million shares in Coinbase worth around $658 million. That all changed Tuesday, with the three ETFs cumulatively dumping more than 1.4 million shares as prices took their latest leg downward.

In terms of holdings, Coinbase is now the 12-largest that ARK has across its ETFs. It still retains 6.9 million shares and cumulatively owns about 3.5% of the company.

In many ways, Cathie Wood’s modus operandi has been to double down on holdings when prices fall, maintaining conviction in ARK’s investments despite punishment from the market, and buying big dips in stocks including

Tesla

(TSLA). 

Cathie Wood hasn’t done that in Coinbase’s case this time, which means that if one of the keenest growth-stock dip-buyers is shying away from the company it could effect overall sentiment.

After all, there are multiple tough forces to blame for Coinbase’s losses, including a collapse in the price of Bitcoin and other digital assets, with the market capitalization of crypto tumbling to less than $1 trillion from nearly $3 trillion in November 2021. 

Coinbase has shown itself to be somewhat correlated to the price of Bitcoin, or at least sensitive to swings in the price of the token. More broadly, price declines in crypto often usher in lower trading volumes, which weighs on revenue for companies like Coinbase. The company is bracing for a slowdown and recently announced job cuts.

The wider reckoning in the stock market hasn’t helped, either. As a high-growth company with prospects grounded in the future of a still-nascent digital token industry, the rout in tech stocks amid an environment of rising interest rates has only compounded Coinbase’s problems. The shares continue to trade at around 50 times next year’s expected earnings.

More recently, the company has come under regulatory pressure, particularly from the U.S. Securities and Exchange Commission. Coinbase last week seemed poised to face off against the regulator on the issue of whether some tokens it lists are securities—a question that may be crucial to future crypto regulation.

Tuesday’s dramatic share price decline accompanied a report that the regulator was probing Coinbase over whether it improperly let Americans trade tokens that should have been registered as securities. Coinbase maintains that it does not list securities.

Write to Jack Denton at [email protected]