The female stock god's ARK is building a position in Coinbase against the trend. Can it replicate the "Tesla miracle"?

This article was published in the vernacular blockchain, author: A Poplar Tree.

In April, Square released a joint white paper with investment firm ARK, proposing a viewpoint contrary to mainstream perception (that Bitcoin mining poses a potential threat to the future environment of the Earth): Bitcoin is actually the key driving force for the future of renewable energy, and Bitcoin mining, like renewable energy, promotes the energy transition.

As a star investment firm that has made waves in traditional capital markets, ARK Invest has gradually entered the public eye in the crypto space.

ARK and the "Queen of Stocks"

ARK was founded by Catherine Wood in 2014, focusing on investment opportunities in "disruptive innovation"—such as gene technology, robotics, artificial intelligence, energy storage, and blockchain technology—believing in the investment logic of "allocating growth small-cap stocks and selling value large-cap stocks."

Thanks to this investment logic, in the past year of 2020, ARK became one of the most prominent investment companies in the U.S. capital market, and its founder and fund manager, Catherine Wood, has been revered by countless investors as the "Queen of Tech Stocks," once dubbed "the woman behind Tesla."

Since its inception in 2014, ARK has been a staunch supporter of Tesla. When Tesla's stock price plummeted in 2016, nearly all analysts were bearish on Tesla, but ARK went against the trend and heavily invested in Tesla, becoming its largest "milk king."

Moreover, in the process of investing in Tesla, ARK essentially did not refer to other analysts' ratings, only trusting its own judgment:

• In 2016, when Tesla's stock price fell by 11% and nearly all analysts lowered their ratings, ARK doubled its position in Tesla;
• In 2017, when Tesla surged by 46%, 68% of analysts were still bearish, while ARK expanded its holdings by at least 13 times;
• In February 2018, when Tesla's stock price hovered around $270, "Sister Wood" stated that Tesla's target price for the next five years was $4,000 per share;
• In January 2020, "Sister Wood" claimed on CNBC that she believed Tesla's stock price could exceed $6,000 within the next five years;

With heavy investments in new tech leaders like Tesla and its extraordinary performance, ARK also achieved unprecedented investment returns in 2020, making Tesla one of "Sister Wood's" most successful investment targets, significantly contributing to her title of "Queen of Tech Stocks."

Meanwhile, over the past five years, ARK's largest product, ARKK, has nearly averaged an annualized return of close to 40%, with five funds seeing gains of over 100% in the past year. The movements of ARK funds have become market focal points, and the "copycat investment strategy" based on them has been increasingly popular.

Starting in 2017, ARK began releasing its "Big Ideas" report at the beginning of the year, inspiring investors to focus on technological breakthroughs and potential investment opportunities. In the "Big Ideas" released in 2020, ARK accurately identified investment opportunities in new energy vehicles and Bitcoin, aligning with its "allocating growth small-cap stocks and selling value large-cap stocks" investment logic.

In the ARK 2021 Big Ideas released on January 27 this year, "Sister Wood" dedicated two chapters out of a total of 15 to explain the fundamentals of Bitcoin and an in-depth analysis of institutional allocation to Bitcoin. ARK expects that Bitcoin will become part of the balance sheets of many institutions and listed companies in the future, welcoming a bright future for Bitcoin.

To some extent, the far-sighted "Sister Wood" is not only a staunch supporter of Tesla but also a loyal fan of Bitcoin: "We believe Bitcoin is the first new asset class since the 16th century, the first truly new asset class since the issuance of the first stock."

Frequent Moves in Crypto Investment
Heavily Allocating to GBTC and Building Positions in Coinbase Against the Trend

"We believe that as institutional interest in Bitcoin increases, there is still considerable room for its price to rise. If institutional investors increase their asset allocation to Bitcoin by up to 5%, Bitcoin's price is expected to rise by an additional $500,000 from its current level."

ARK and "Sister Wood" have consistently been optimistic about typical new technologies like Tesla, and they have also been steadfast supporters of Bitcoin, this type of "atypical" emerging asset, and have begun to make significant investments early on, with remarkable achievements:

As early as 2015, when many were still puzzled about what Bitcoin was, ARK Invest's ARKW entered the market, heavily investing in GBTC issued by Grayscale, when Bitcoin's price was only $250.

Today, ARK remains a major holder of Grayscale Bitcoin Trust, cumulatively holding 15,276,700 shares of GBTC (incomplete data, as of the latest data on March 30, with a market value of approximately $690 million), accounting for more than 5% of the fund's total investment portfolio.

After Coinbase went public on April 14, the performance of COIN (Coinbase's stock code) in the secondary market was not satisfactory, but ARK allocated over 1 million shares of Coinbase stock within two days of its listing, valued at approximately $352 million at that time.

In the following half month, although Coinbase's secondary market continued to weaken, ARK consistently increased its holdings in the stock while reducing positions in other related stocks—ARK funds increased their holdings in Coinbase while continuously selling shares of Intercontinental Exchange Inc., the parent company of the New York Stock Exchange, and sold Square and NVIDIA.

From ARK's five-year target, "Sister Wood" remains very optimistic about Coinbase's prospects and the returns it can achieve.

Heavily betting on Tesla to create miracles in traditional capital markets, after significantly investing in GBTC, now ARK is also allocating to Coinbase against the trend, and "Sister Wood" has been generous in her praise for the crypto asset space represented by Bitcoin—the $1 trillion milestone is insignificant compared to the ultimate market value of digital assets.

Now, whether "Sister Wood's" layout in the crypto space regarding GBTC, BTC, and Coinbase can replicate the miracle of Tesla in 2020 in a few years and further validate her long-term vision as the "Queen of Stocks" remains to be seen.

New Trends of Traditional Institutions Actively Entering the Market

Of course, ARK's frequent statements and active layouts are just a microcosm of traditional financial institutions like Wall Street investing in the crypto asset space. The trend of original crypto investment institutions deepening their efforts and more traditional players actively entering is already evident; last year we witnessed the first half of institutions rushing into the market.

This year, the second half of institutional entry is even more intense. Recently, early investors in well-known companies like Coinbase and Ripple, Andreessen Horowitz (a16z), announced plans to establish a $1 billion cryptocurrency venture capital fund, which is also its third specialized fund focused on cryptocurrency investment:

• In 2018, a16z launched its first fund focused on the cryptocurrency space, raising $300 million;
• In April 2020, a16z launched its second cryptocurrency fund, "Crypto Fund II," with a scale of $515 million;

Meanwhile, Paradigm, co-founded by Coinbase co-founder Fred Ehrsam and former Sequoia Capital partner Matt Huang in 2018, has recently raised a total of $1 billion from investors.

In addition to the investment funds that are continuously refreshing fundraising amounts and rapidly establishing themselves, actions from public companies, regulatory agencies, and others are also showing clear signs of loosening:

• As of April 28, 2021, U.S. public company MicroStrategy holds a total of 91,579 Bitcoins, and its CEO Michael J. Saylor stated that in seeking to create more value for shareholders, "we will continue to allocate and hold more Bitcoin";
• PayPal recently released its Q1 financial report, with revenue exceeding $6 billion, part of which comes from cryptocurrency business. The CEO stated that half of users hope to use cryptocurrencies in the future, and cryptocurrency users open the app more frequently;
• In Germany, new legislation allows institutional investment funds to invest in cryptocurrencies, enabling about 4,000 existing institutional investment funds to qualify for investing in crypto assets. The new legislation will take effect on July 1, allowing fund managers to allocate 20% of their funds to crypto assets;

On May 5, the latest news from Bitcoin custody company NYDIG stated that this year Bitcoin will enter hundreds of banks in the U.S., allowing customers to allocate, hold, and sell Bitcoin, "what we are doing is enabling Americans and companies to directly and simply allocate Bitcoin through their existing banking relationships."

In the recent hot secondary market, with the blooming wealth miracles, many may have slowly forgotten about GBTC, which originally dominated the stage in 2020, and even the much-anticipated COIN (Coinbase stock code) this year is gradually being overlooked, with the market cap and discussion of Bitcoin stagnating and declining.

However, the institutional power represented by ARK is intensifying its layout, driven by the rapidly growing demand from professional investors for crypto assets. Their substantial entry and layout are accelerating the gradual emergence of crypto assets as one of the core assets in traditional investment institutions' allocations.

The impact on the crypto world could be fundamental: whether it is the introduction of massive incremental funds or the subsequent targeted improvement of regulations, it will represent a change that has never been seen in the past decade or so.