COIN Stock: Why Has Cathie Wood Been Selling Coinbase Shares?

Coinbase returned to profitability in Q4 2023 amid bitcoin’s recent rally. The share price gain has led to ARK Invest’s Cathie Wood, a notable bitcoin bull, selling thousands of shares to rebalance her funds’ weightings.

According to Cathie’s Ark, which monitors the daily trades of all her funds, Cathie Wood, Founder and Chief Investment Officer of ARK Invest, most recently sold Coinbase [COIN] shares on 11 April, when she offloaded 63,627 shares from the ARK Innovation ETF [ARKK] and 13,934 shares from the ARK Next Generation Internet ETF [ARKW].

Wood also sold tranches on 8 April, including from the ARK Fintech Innovation ETF [ARKF].

While there’s no way of knowing exactly why Wood has been selling Coinbase shares, the most likely explanation is portfolio rebalancing.

ARK’s investment strategy is to not let a single stock comprise more than 10% of its actively managed ETFs.

The 13F filing for Q4 2023 shows that, as of 31 December last year, Coinbase was ARK Invest’s largest holding, accounting for 8.9% of its $16.9bn portfolio. However, the stock’s recent surge — it’s up 41.3% year-to-date through 15 April — has meant that its weighting within its ETFs likely exceeded 10%.

As of 15 April, Coinbase’s weighting in ARKF is above the threshold at 11.9%. However, its weightings in ARKK and ARKW are 9.3% and 9.6% respectively.

Riding the Crypto Wave

Recent Coinbase share sales aside, ARK is generally bullish on bitcoin. The firm’s monthly report on the cryptocurrency for March states that bitcoin “has not entered overbought territory” and “has not hit levels associated with extreme exuberance”, despite topping $74,000 last month.

Bitcoin’s bull run from the end of 2023 helped Coinbase return to profitability in the last three months of the year. Net income for Q4 2023 was $273m, compared to a loss of $557m in Q4 2022, and revenue jumped 51% year-over-year to $953.8m. Trading volume surged 164% from Q3 2024 to $29bn.

In a shareholder letter, the company attributed the sharp rise in crypto asset prices and volatility in Q4 2023 to “excitement around bitcoin spot ETF approvals and broad expectations around improving macroeconomic conditions in 2024”.

Coinbase’s SEC Lawsuit Overhang

Coinbase may be riding the bitcoin wave right now, but the stock has still been facing near-term volatility due to an overhang of US Securities and Exchange Commission (SEC) lawsuits.

At the end of March, a judge ruled that the government agency could sue Coinbase for allegedly offering its customers unregistered securities. Although the majority of Coinbase’s arguments for dismissal were rejected, the judge did rule that the company’s self-custody crypto wallet doesn’t make the company a broker.

In a series of posts on X, formerly Twitter, Coinbase’s Chief Legal Officer Paul Grewal wrote that “we remain confident in our legal arguments, we look forward to proving we’re right, we are eager for the opportunity to take discovery from the SEC for the first time, and we appreciate the Court’s continued consideration of our case”.

Elliot Stein, Senior Litigation Analyst at Bloomberg, has put Coinbase’s chances of winning the case at 70%.

Bitcoin Rally Fuels Coinbase Share Price

Until there’s a conclusion, the SEC case could weigh on the stock in the near term. The uncertainty has coincided with the Coinbase share price wobbling recently. It’s down 7.3% in the past two weeks, although it’s up 251.5% in the past year thanks to bitcoin’s recent rally.

Amid this uncertainty and crypto volatility in general, another way to gain exposure to the stock is through thematic ETFs. Here are a couple of options other than the ARK funds mentioned above.

The Global X FinTech ETF [FINX] has Coinbase as its seventh-biggest holding, with a weighting of 5.6% as of 12 March. The fund is up 23.9% in the past year through 15 April and up 1.5% year-to-date.

The Bitwise Crypto Industry Innovators ETF [BITQ] has Coinbase as its second-biggest holding, with a 13% weighting. The fund has been up 55.2% in the past year and down 4.7% year-to-date.