Cathie Wood’s Ark Investment Management LLC, known for its active management of ETFs focused on disruptive technology, stunned the market by reducing its holdings of Coinbase Global (COIN), per a Bloomberg article, quoted on Yahoo Finance.
This move followed after almost a year of steady buying of the cryptocurrency exchange operator’s stock. The decision sparked questions about Wood’s outlook for Coinbase and its implications for other investors.
Coinbase has experienced awesome growth in 2023. The company’s shares have climbed more than 150% year-to-date, in line with the broader rebound noticed in cryptocurrency-linked stocks. This ascent contrasts sharply with the 86% decline witnessed by Coinbase in the previous year due to rising rates caused by steep and fast Fed rate hikes.
Ark’s Long Buying Streak Ends
Ark Innovation ETF (ARKK), the flagship fund of Cathie Wood’s firm, sold 135,152 shares of Coinbase on Jul 11, 2023, marking the first reduction in the stock since July 26, 2022. Over the past 11 months, Ark had been amassing shares of Coinbase during price dips, even amidst regulatory crackdowns, industry volatility, and bankruptcies.
Fed to Hike Rates in the Near Term?
The change in strategy is an indication of a shift in Wood’s attitude toward the cryptocurrency market or the entire growth investing. And why not? This year’s rally was primarily aided by a less-hawkish Fed. But the U.S. central bank’s policy tightening move is going to heat up again, given a resilient U.S. economy and slowly falling inflation.
The Fed appears steadfast to tame inflation no matter what happens. As of now, two more rate hikes worth 25 bps each is destined for 2023, one of which is going to take place this month only. And if rates rise, growth stocks like technology and crypto-currency mining tend to underperform.
Is Coinbase Overvalued?
Interestingly, Ark slashed its stake in Coinbase on a day when the stock rallied 9.8% (i.e., on Jul 11, 2023). The rally was aided by optimism surrounding a potential approval of a Bitcoin ETF by U.S. regulators, as indicated by a filing from the Chicago Board Options Exchange. This strategic move by Ark indicates the possibility of profit-taking following the substantial price appreciation of Coinbase this year.
Coinbase Global shares jumped 6.7% last week. The stock has gained strength due to BlackRock’s recent filing of a spot ETF application. However, the stock has a downbeat Value quotient of “F.”
Analysts Estimate Cuts on Coinbase
The earnings estimate for the upcoming quarter was cut by one analyst out of eight over the past seven days, 30, and 60 days. The same number of cuts was noticed over the same time periods for the upcoming two fiscal years. No analyst made upward estimate revisions.
Downbeat Magnitude – Consensus Estimate Trend
The current EPS estimate is negative 84 cents, down by two cents over the past seven days. EPS estimate for fiscal 2023 is negative $2.56, down by nine cents over the past seven days. EPS estimate for fiscal 2024 is negative $2.19, down by 16 cents over the past seven days.
Inside Ark’s Key ETF’s Performance
While Ark Investment Management LLC has offered outstanding returns this year, with the Ark Innovation ETF posting a gain of 51%, the fund ARKK fell 67% in 2022, due to its high-growth portfolio which was hurt by rising rates. No wonder, Cathie Wood took positions this year also before the stringent Fed policy tightening cycle starts again.
ETFs in Focus
Coinbase heavy ETFs like Fidelity Crypto Industry and Digital Payments ETF (FDIG) (COIN’s weight 15.65%), First Trust SkyBridge Crypto Industry & Digital Economy ETF (CRPT) (COIN’s weight 14.95%), iShares Blockchain and Tech ETF (IBLC) (COIN’s weight 12.39%), ARK Fintech Innovation ETF (ARKF) (COIN’s weight 11.78%) and Global X Blockchain ETF (BKCH) (COIN’s weight 11.51%) may find themselves in tight spot in the near term.
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ARK Innovation ETF (ARKK): ETF Research Reports
ARK Fintech Innovation ETF (ARKF): ETF Research Reports
Global X Blockchain ETF (BKCH): ETF Research Reports
Coinbase Global, Inc. (COIN): Free Stock Analysis Report
First Trust SkyBridge Crypto Industry and Digital Economy ETF (CRPT): ETF Research Reports
Fidelity Crypto Industry and Digital Payments ETF (FDIG): ETF Research Reports
iShares Blockchain and Tech ETF (IBLC): ETF Research Reports
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