The cryptocurrency market has experienced significant volatility this year, attracting attention from Ark Invest, known for investing in the cryptocurrency and startup industries. Media reports have highlighted Ark Invest’s large-scale sale of Coinbase (COIN) and Grayscale Bitcoin Trust (GBTC) holdings, as well as their purchase of Jack Dorsey’s fintech company, Block (SQ). Has Ark Invest changed its fundamental view, or is all of this just a matter of rebalancing?
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Cryptocurrency Market Warms Up, Coinbase Stock Rises 341%
What is Rebalancing?
Ark Invest’s Rebalancing
Cryptocurrencies have had an impressive performance this year, with Bitcoin rising from 166K at the beginning of the year to its current level, representing a 156% increase. This outperforms the 52% increase in the technology stock index Nasdaq. The stock price of the exchange Coinbase has soared from $34 at the beginning of the year to over $160, an increase of 341%.
On the other hand, Block (SQ), which is also favored by Cathie Wood, experienced a decline to $40 in November, but has recently started to recover, with only a 16% increase this year.
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Cathie Wood defends Block, Ark Invest continues to increase holdings of Block stocks
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According to data from the ArkTrace website, Ark Invest’s flagship fund, ARKK, bought 256,224 shares of SQ in December and sold 826,340 shares of COIN, equivalent to $17.9 million and $123 million, respectively (estimated based on stock prices of $70 and $150). COIN remains the top holding of ARKK, accounting for 10.57% of the fund’s weight, while SQ (BLOCK) ranks sixth with a weight of 6.37%.
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Rebalancing is an important mechanism for long-term asset allocation. As the name suggests, it is the process of rebalancing an investment portfolio.
To explain using the most common traditional asset allocation of 60% stocks and 40% bonds:
Initial: Investors allocate $100 to the stock market and $40 to the bond market.
Final: The $60 worth of stocks rises to $90, while the $40 worth of bonds drops to $30. The total assets increase to $120.
At this point, due to the increase in stock prices, the weight of stocks has deviated from the target of 60%, reaching $72. Therefore, some stocks need to be sold, and $18 worth of bonds need to be bought to bring the weight back to 40%.
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In addition to maintaining the original asset allocation, the design of rebalancing also has the effect of buying more at low prices and taking profits. It is an important lesson for long-term asset allocation investors.
As an asset management company, rebalancing is undoubtedly an important issue for Ark Invest. The selection and allocation of funds have certain criteria to follow and require constant adjustments.
With Coinbase’s more than three-fold increase this year, its weight in the portfolio has undoubtedly increased significantly. At this time, Ark Invest can only sell its holdings and use the cash to buy other holdings with relatively lagging performance. This is why we have seen Ark Invest selling Coinbase and Grayscale’s Bitcoin Trust (GBTC) this year and increasing holdings of Block (SQ) and Robinhood (HOOD)!
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Robinhood’s cryptocurrency trading volume surges, Ark Invest continues to increase holdings
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Further Reading:
BlackRock to Meet with SEC Again, Coinbase’s Role to Change to “Primary Execution Agent”
Cryptocurrency Market Update: Ark Invest Sold Significant Stake in Coinbase and GBTC Last Week.