Ark Invest said Coinbase is poised to benefit from the crash of rival exchange FTX despite near-term weak sentiment in the crypto space, as the fund group recently resumed buying the stock for its largest ETF.
While FTX’s fall, and the subsequent arrest Monday of its founder, could delay certain developments in the space, Ark Research Director Frank Downing said during a webinar, Coinbase is set to thrive once regulatory clarity in the segment comes.
“We think that over the medium to long term, while the industry is set back now, Coinbase really will be a share gainer here as momentum and trust flows away from this kind of frontier in the international world to the more trusted, more regulated exchanges,” he said.
Unlike FTX, Downing added, Coinbase — as the largest publicly-traded crypto exchange in the US — produces quarterly financial statements and auditing firm Deloitte certifies that its assets are backed one-to-one.
“In an environment of tighter regulations, Coinbase’s standing could prove as a moat compared to some of its less regulated counterparts,” he said.
Buying more COIN
Ark Invest has eight ETFs trading in the US with combined assets of roughly $12.4 billion, according to ETF.com. Its largest ETF upped its position in Coinbase last week as centralized exchanges seek to offer more transparency in the wake of FTX filing for bankruptcy.
The fund manager bought 78,982 shares of Coinbase for its Ark Innovation ETF (ARKK) — a position that represented nearly 0.05% of the fund.
Coinbase’s stock price — down about 84% year to date — was down about 9% Tuesday, as of 4:00 pm ET, setting a new low for the shares since the firm’s 2021 listing on the Nasdaq.
ARKK has nearly $7.7 billion in assets under management. The ETF is down about 64% year to date and down about 9% over the past month.
Coinbase stock made up 3.53% of ARKK, as of Tuesday — ranking 14th-highest of the ETF’s 31 holdings. The Coinbase shares in the fund have a market value of roughly $250 million.
An Ark Invest spokesperson did not immediately return a request for comment.
Owen Lau, an executive director at Oppenheimer & Co., told Blockworks that the overall sentiment for Coinbase is weak after the collapse of FTX. But he likened that sentiment to those felt by financial giants such as Goldman Sachs and Morgan Stanley after the collapse of Lehman Brothers.
“It was actually a good time to buy the industry leaders,” Lau added. “It took time for these stocks to recover, and further downside risk is still uncertain, but Ark has a long investment horizon which could take advantage of the situation here for Coinbase.”
In late July, Ark Invest sold off roughly 1.4 million shares of Coinbase, worth about $79 million at the time. The SEC had just classified nine Coinbase-listed tokens as securities in a complaint alleging that a former Coinbase product manager and people close to him used classified information for insider trading.
The following month, Ark Invest analyst Yassine Elmandjra said the company was bullish on Coinbase, noting that the crypto exchange’s partnership with BlackRock could be a catalyst for bitcoin’s price to rise by up to $500,000.
On Nov. 8 and 9 combined — as news was circulating about FTX’s “liquidity crunch” and Binance’s potential buyout of the exchange — Ark Invest bought nearly 540,000 shares of Coinbase for ARKK. Crypto stocks, including Coinbase, had plummeted amid the developments.
FTX filed for bankruptcy on Nov. 11. A week later, on Nov. 18, Ark reported buying 255,000 more Coinbase shares for ARKK.
Exchanges seek transparency after FTX debacle
Ark Invest’s latest buy of Coinbase shares comes as rival exchanges have looked to offer more transparency in the wake of FTX’s crash.
Coinbase Chief Security Officer Philip Martin said in a Nov. 25 blog post that it was the only crypto company “providing the transparency and assurance of a public company financial audit.” He added that Coinbase was exploring more crypto-native methods to proving reserves and unveiled a $500,000 developer grant program to incentivize others to do the same.
“For tomorrow we are working toward a decentralized system where you don’t have to trust us, or any institution,” Martin said at the time.
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Source: https://blockworks.co/news/ark-invest-ftx-opportunity-for-coinbase