Are Investors Losing Confidence in Cathie Wood’s Vision?
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Are Investors Losing Confidence in Cathie Wood’s Vision?

Depending entirely on the Fed's free money turned out to be a poor investment strategy.
Neither the author, Tim Fries, nor this website, The Tokenist, provide financial advice. Please consult our website policy prior to making financial decisions.

Known for taking risk-on assets, Cathie Woods’ ARK ETF has added Coinbase (COIN) as its December crypto investment. This appears to be a “buy-the-dip” strategy in a near-bottom market. Will investors stick to it or exit Wood’s ARKK?

Cathie Woods Bets on Coinbase

Once valued at $65 billion at its Initial Public Offering (IPO) in 2021, Coinbase (COIN) shrunk to a $9.1 billion market cap at $40.12 per share. The third largest crypto exchange is now down 84%, year-to-date. Cathie Wood used that opportunity to get another $3 million worth of COIN shares at Friday’s closing price of $40.24.

This makes ARK Innovation ETF (ARKK) the second largest Coinbase shareholder (4.36%), after the Vanguard Group, at a total of 7.7 million COIN shares. Interestingly, Wood’s COIN accumulation comes one week after Coinbase CEO, Brian Armstrong, said that they expect half as much revenue this year.

“Last year in 2021 we did about $7 billion of revenue and about $4 billion of positive EBITDA, and this year with everything coming down it’s looking, you know, about roughly half that or less,”

Brian Armstrong, Coinbase CEO, at Bloomberg’s David Rubenstein Show

Coinbase revenue shrunk by 77% from last year’s peak of $2.5 billion in Q4 vs. this Q3 at $0.57 billion. However, this is still over 200% higher than in Q1 2020, when the Federal Reserve started pumping liquidity into the economy in a near-zero interest environment.

ARKK’s Tight Bond With Fed’s Liquidity Splurge

Cathie Wood’s investment arc is best described as one that’s riding the Federal Reserve’s waves. Once the Fed opened its liquidity floodgates in March 2020, eventually increasing its balance sheet by ~$5 trillion, some of it spilled into risk-on assets. Whether they are growth stocks, cryptocurrencies, or companies handling digital assets, they deflated once the Fed ramped its interest rate hikes in April.

This was juxtaposed against the rising dollar strength index (DXY). The crypto market, led by Bitcoin (BTC) as a fiat debasement hedge against the dollar, suffered accordingly. In fact, Cathie Wood’s ARK ETF (ARKK) has been largely in lockstep with Bitcoin, both going down by 63% year-to-date.

Inverse relationship between a strong dollar (DXY) and risk-on assets. Image credit: TradingView

Tech growth stocks in Wood’s Ark Innovation ETF (ARKK) portfolio had a similar fate.

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ARKK’s Draining Innovation Strength

In a liquidity-abundance environment, tech stocks and cryptocurrencies had a field day in 2021. This was boosted by remote communication platforms. ARKK’s holdings reflected that by staking the four largest assets by weight: Zoom Video Communications (ZM), Tesla (TSLA), Exact Sciences (EXAS), and ROKU (ROKU) video streaming service.

Cathie Wood’s ARKK holdings above 5% weight. Image credit: Ark Invest.

Year-to-date, ROKU has been the biggest loser at a 78% value loss, followed by ZM (-61%). Interestingly, EXAS, specializing in early cancer detection, outperformed TSLA by +11%, at -40% vs -51%. Overall, ARKK lost over half its value this year, at -63%. 

Now holding $7.6 billion of net assets, this means that ARKK was only profitable on a 5-year horizon, at +3.49%. Since its inception in 2014, ARKK can only boast a 9.65% investment return. Nonetheless, Cathie Wood is not faltering on her on-risk investment long-term plan. 

She recently said that Bitcoin will go to $1 million per BTC by 2030, while Zoom (ZM) will head for $1,500 per share by 2026. With a looming recession on the horizon for 2023, it appears that ZM investors, presently holding $72.93 per share, will have to fortify their patience.

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Do you think Cathie Wood counts on a Fed pivot in 2023/24? Let us know in the comments below.