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Ark Invest snaps up Coinbase shares following IPO

It has been an eventful year so far for Ark Investment Management. After breaking into Bloomberg’s list of top 10 issuers of global ETFs in January, the firm then made headlines following the launch of its Space Exploration & Innovation ETF [ARKX] in March.

Ark Invest turned heads again when it purchased shares of cryptocurrency trading platform Coinbase Global [COIN] on its 14 April debut. The firm acquired the stocks for three of its funds: the ARK Fintech Innovation ETF [ARKF], the ARK Next Generation Internet ETF [ARKW] and its flagship fund, the ARK Innovation ETF [ARKK].

The ARK Fintech Innovation ETF closed at $53.71 on 14 April, up 6.8% from the 4 January opening price and 137.7% in the past year. Meanwhile, the ARK Next Generation Internet ETF closed at $155.30 on 14 April, a 5.1% increase since open on 4 January and 160.9% higher than 12 months ago. The ARK Innovation ETF closed at $124.87 on 14 April, 1% below its 4 January opening price, although still a comfortable 151.9% above its price a year ago..

All three funds suffered significant losses in early March and continued to dip towards the latter half of the month but have since seen partial recoveries.

 

Trading COIN

Ark Invest’s purchases totalled $246m worth of Coinbase shares across the three funds, according to Bloomberg. “There are going to be great opportunities between now and five years to buy [Coinbase] on dips,” Catherine Wood, CEO and CIO of Ark Invest, told the publication.

"There are going to be great opportunities between now and five years to buy [Coinbase] on dips" - Cathie Wood, Ark Invest CEO and CIO

The firm acquired 89,589 Coinbase shares for the ARK Fintech Innovation ETF and 147,081 shares for the ARK Next Generation Internet ETF. The ARK Innovation ETF received the largest haul of 512,535 shares.

As of 16 April, Coinbase shares were the 40th biggest holding in the ARK Fintech Innovation ETF, with a 0.9% weighting. In comparison, the weightings in the ARK Next Generation Internet ETF and the ARK Innovation ETF were 0.77% and 1.01%, respectively, making the stock the 48th and 35th biggest holding in the respective funds.

On its debut, Coinbase’s valuation went as high as $112bn. The trading platform’s shares opened on the Nasdaq Global Select Market at $381 and rose to an intraday high of $429.54, although the price soon fell back and closed the day at $328.28.

Rather than a traditional IPO, Coinbase — the first major cryptocurrency company to go public — followed in the footsteps of technology giants like Spotify Technologies [SPOT] and Palantir Technologies [PLTR] by debuting through a direct listing, allowing its employees and investors to sell its shares to the public.

Coinbase’s user numbers have grown from just 13,000 in 2012 to 43 million at the end of 2020, and stood at 56 million at the end of the first quarter of 2021. Unusually, for a company listing on the Nasdaq, Coinbase was already profitable.

56 million

Coinbase users

Its main revenue generator had been its commission charges, according to the New Statesman, which were 46 times more than what the NYSE or Nasdaq charges. This implies that the company will eventually face a choice between continued growth or cutting into its profit margins to remain competitive, if a broader pool of investors begins to expect comparable commission rates.

 

Mining controversy

There is a hint of irony in that Coinbase’s gain is the loss of one of the key stocks that drove Ark Invest’s success, particularly the ARK Innovation ETF’s outperformance earlier in the year.

Ark Invest sold a total of 242,755 shares in Tesla [TSLA] from the ARK Innovation ETF and the ARK Next Generation Internet ETF on 14 April. However, as of 16 April, the electric carmaker remains the top holding in both funds. Tesla’s share price fell 3.9% on 14 April, giving it a year-to-date rise of 3.7%.

Tesla recently caused outrage among its environmentally minded fanbase after it first invested in Bitcoin, because of the ravenous energy consumption of mining operations.

According to the University of Cambridge’s Bitcoin Electricity Consumption Index [CBECI], Bitcoin miners are expected to consume as much energy as the entire nation of Sri Lanka.

"Bitcoin miners are expected to consumer as much energy as the entire nation of Sri Lanka"

Ark Invest had previously published research showing that Bitcoin mining consumes “less than 10% and 40%” of the energy required for traditional banking, overlooking the fact that Bitcoin isn’t as prevalent as traditional banking.

Blockchain advocates’ counter-argument is that mining operations exploit local supplies of clean energy, such as hydro or geothermal power. However, recent reports linking Bitcoin mining to coal-powered plants and exploited Uyghur labour has thrown the sustainability of cryptocurrency mining into question, which will likely require an answer for Ark Invest’s more ethically-minded investors.

Disclaimer Past performance is not a reliable indicator of future results.

CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.

The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although we are not specifically prevented from dealing before providing this material, we do not seek to take advantage of the material prior to its dissemination.

CMC Markets does not endorse or offer opinion on the trading strategies used by the author. Their trading strategies do not guarantee any return and CMC Markets shall not be held responsible for any loss that you may incur, either directly or indirectly, arising from any investment based on any information contained herein.

*Tax treatment depends on individual circumstances and can change or may differ in a jurisdiction other than the UK.

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