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Ark's Cathie Wood Still Hot on Bitcoin and Tesla Despite Big Drops

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What You Need to Know

  • Bitcoin is down 17% from its recent record high; Tesla dropped 13% since Feb. 19.
  • The drops are affecting Ark Investments' ETFs.
  • Wood expects the market cap of Bitcoin will surge from $950 billion into trillions of dollars.

Ark Investments CEO Cathie Wood is such a big champion of Bitcoin and Tesla that she doesn’t seem worried about the double-digit declines in both this week, even though 10% of the assets of several of her firm’s ETFs are invested in Tesla, which has recently disclosed $1.5 billion invested in Bitcoin.

Several of Ark Investments’ ETFs also have large holdings in Square, another big institutional buyer of Bitcoin, which accounts for about 5% of its cash holdings. Five percent of Ark’s Next Generation ETF (ARKW) is held in Grayscale Bitcoin Trust (GBTC). All of these holdings tie the fortunes of Ark ETFs, which surged last year, to Bitcoin and Tesla, at least for now.

Bitcoin remains volatile and has fallen 17% since hitting a record high of just over $58,000 on Sunday. Tesla is off more than 13% since Friday’s close, while Square is down about 18%. On Thursday, Tesla and Square were caught up in Thursday’s stock market decline due to the sharp rise in Treasury yields, which weighed especially on tech stocks. Tesla was especially vulnerable because of comments CEO Elon Musk made earlier in the week that Bitcoin prices seemed “high.”

Declines in Tesla and Square have affected four of Ark’s own ETFs — the ARK Innovation ETF (ARKK), Next Generation Internet ETF (ARKW), Genomic Revolution ETF (ARKG) and Fintech Innovation ETF (ARKF) — which own either Tesla or Square or both. Their prices have dropped from 12% to 15% this week though most remain up for the year so far after all more than doubled in price last year.

“I’m very optimistic on both” Tesla and Bitcoin, said Wood, who sat on a panel at Bloomberg’s virtual Crypto Summit on Thursday. She said she expects more institutions will diversify some cash holdings into Bitcoin, as MassMutual has done. (The insurer disclosed in December a $100 million investment in Bitcoin.)

The Many Use Cases for Bitcoin

Wood views Bitcoin and  other cryptocurrencies as substitutes for cash and as part of the solution to the dying 60/40 stock/bond allocation in balanced portfolios. Some of those bond allocations could move into Bitcoin because the secular decline in interest rates is ending, negating chances of capital appreciation in bonds, and Treasury yields remain low, providing little income despite recent increases in long-term Treasurys, according to Wood.

The celebrity ETF CEO said Bitcoin and crypto are the only examples of a rules-based monetary policy left in a world where current monetary policy is “unhinged.”

Bitcoin has multiple uses, according to Wood. In addition to serving as a partial substitute for cash and for bonds, it’s also a substitute for gold, which has failed to rise as the dollar as fallen. Bitcoin is the “reserve currency of the crypto asset market” with the most “secure blockchain network” in the “first global digital monetary system,” Wood said.

Institutions can use Bitcoin instead of cash as a hedge against “unhinged monetary policy, demonetization and outright confiscation of wealth in countries,” she said.

All these different use cases will eventually rally Bitcoin’s market cap from about $950 billion currently into “trillions of dollars,” Wood said.

She noted the pushback that Bitcoin is getting from the “ESG movement,” especially in Europe, but countered that Bitcoin mining uses less energy than gold mining or traditional financial services, which involve multiple layers including trading and settlement, adding that most of the energy is hydropower and other renewables.

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