ARK: buy Coinbase stock despite Silvergate

Cathie Wood’s ARK Invest continues to buy Coinbase stock for the sixth consecutive month, still ignoring the Silvergate bank failure situation. Here are the details.

It is worth recalling that ARK is a project that offers an in-depth set of tools that simplify the creation of a blockchain ecosystem that can work with each other.

It is all open source so that anyone can leverage blockchain technology for their own project.

Why is ARK still buying Coinbase stock?

As anticipated, ARK does not seem fazed at all by Silvergate Bank’s bankruptcy situation, as it has increased its COIN exposure by more than 700,000 shares so far in 2023.

Indeed, the latest data show that ARK continues to buy COIN stock despite concerns about the failure of Silvergate bank, a major partner of Coinbase.

In the latest demonstration of its fearless approach to the crypto space, ARK bought another 47,568 shares of Coinbase on 7 March. These join the approximately 6 million shares already held in ARK’s exchange-traded fund (ETF) earlier this month and are already its third purchase of the week.

However, COIN itself has been under pressure since early February, falling from local highs of $87.50 to current levels of $61.69. A drop of nearly 30% in just over a month, according to TradingView data.

While Silvergate has rushed a new scrutiny when it comes to cryptocurrency exchanges in particular, the events seem not to faze ARK and CEO Cathie Wood, known for bucking the trend and increasing exposure to assets like COIN even during the bear market of 2022 .

In a recent edition of its weekly newsletter published on 27 February, ARK hinted at its rationale, expressing enthusiasm for Coinbase announcing its Ethereum Layer-2 network, Base. 

In fact, AKR wrote about it:

“In our view, Coinbase’s decision to build and integrate its services into a decentralized crypto infrastructure highlights its deep alignment with the fair, transparent, and accessible financial services that public blockchains aim to offer.”

GBTC also benefits from the situation: increasing value

Continuing with its statements, AKR writes:

“While it will not derive transaction revenue from Base at launch, Coinbase is likely to reap financial benefits if its wallet serves as a reliable ramp and entry point to applications on the network as it scales.”

The buy-ins have been priced: the company’s cost basis is currently $254 per share, far higher than their current value. Also benefiting this week is Bitcoin‘s largest institutional investment vehicle, the Grayscale Bitcoin Trust (GBTC).

At a critical juncture for its owner Grayscale, during its long battle to convert and launch GBTC as an ETF in the United States, the Trust saw a modest increase in value earlier in the week.

A court is currently deciding whether the US regulator, the Securities and Exchange Commission (SEC), has the right to continue to deny the launch of what would be the first Bitcoin spot price ETF in the US market.

GBTC remains near a record discount to Bitcoin‘s spot price, with its shares trading at an implied price nearly 50% lower than BTC/USD, according to data from monitoring resource Coinglass.

All the while, as usual with the ETF narrative, criticism lingered. Indeed, in today’s statement, statistician Willy Woo said:

“Spot approval of the ETF by the GBTC would reduce the price of BTC and increase the ETF. The pent-up selling pressure on GBTC that built up during the bear market (as reflected in the GBTC discount) would be released into the open market.”

ARK meanwhile owns 5.53 million GBTC shares, having last increased exposure in November 2022, just after the FTX debacle broke out. However, it reduced its holdings by 500,000 shares in January.

Beyond the stock, Coinbase acquires One River Digital Asset Management

Coinbase recently acquired cryptocurrency-focused hedge fund One River Digital Asset Management, or ORDAM. In an announcement published on 3 March, Coinbase stated that One River Digital will become Coinbase Asset Management.

Hence, an independent business and a wholly owned subsidiary of the cryptocurrency exchange. One River Digital is registered as an investment adviser with the US Securities and Exchange Commission and has accepted investments from Coinbase in the past to scale its business.

Coinbase in this regard stated the following:

“Coinbase and ORDAM share an ethos of prudent risk management, a trait that has enabled both companies to successfully navigate recent market turmoil.”

As part of the acquisition, Coinbase said the One River Digital team will join the crypto exchange and Peters will remain at the helm of the new company. In addition, during the transition, the exchange assumed minimal disruption to current business operations.

Importantly, the news of the acquisition follows Coinbase’s announcement that it would cut ties with Silvergate, following the fact that the bank was under investigation by the US Department of Justice for its alleged involvement in the FTX collapse.

The crypto exchange has already announced that Signature Bank will handle cash transactions for its core institutional clients.