Cathie Wood's Ark Invest Divests from GBTC and Invests in Coinbase

Key points:

• Ark Invest increased the number of shares in ARK Next Generation Internet ETF (ARKW) by 450,272 GBTC worth $4.5 million in November 2022. 
• At the start of the year, GBTC was trading between $7.46 and $9.48, which is approximately 12.25% of its current price of $12.25.
• Overall, Ark appears to be primarily increasing its exposure to the Bitcoin market, specifically, Wood is well-known for her frequent $1 million prediction of the BTC price by 2030. 
• The recent sales of GBTC shares by Ark coincided with a buildup of Coinbase (COIN) shares, which led to a $17.6 million gain in the fund's value. 
• Pat Tschosik, a portfolio strategist at Ned Davis Research, claims that by mid-2023, the price of GBTC would have to increase by a factor of at least 2, and this would narrow the existing price differential with the Bitcoin price. 

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Cathy Wood's Ark's short-term holdings in GBTC

Ark Invest increased the number of shares in ARK Next Generation Internet ETF (ARKW) by 450,272 GBTC worth $4.5 million in November 2022. At the start of the year, GBTC was trading between $7.46 and $9.48, which is approximately 12.25% of its current price of $12.25.

The price of GBTC, of course, increased alongside Bitcoin, increasing by roughly 40% from its low in November. The increase in revenue in January also decreased the GBTC's "advantage" from approximately 50% to 40%, according to YCharts.

GBTC 1D chart. Source - TradingView

Interestingly, the share price increase followed a reduction in ARKW's GBTC holdings of 500,000 shares, which suggests short-term profit-taking.

GBTC shares (purple) in Ark's ETF versus its price (orange). Source - Cathiesark.com

Additionally, the decrease in Ark's shares since November appears to be in line with the company's official "bearish" perspective on the Grayscale Bitcoin Trust, as mentioned in its December report:

"The Digital Currency Group (DCG) appears to be one of the biggest questions marks in the crypto industry at this time."

The corporation also expressed concern regarding Genesis Global, a cryptocurrency lender that is owned by DCG. Genesis sought bankruptcy while claiming to have $1 billion to $10 billion in debt to over 100,000 different creditors.

At the same time, Grayscale has been unable to convert its Bitcoin trust into an ETF following SEC rejections. A permit from the SEC would reset the GBTC discount to 0.

However, as of Jan. 23, the percentage of GBTC's weight in Ark's portfolio has actually increased to 0.52% as opposed to its lowest point of 0.35% on November 22nd. 

GBTC shares' weight (purple) across Ark ETFs. Source - Cathiesark.com

Ark increases the value of Coinbase stock by $17.6 million.

The recent sales of GBTC shares by Ark coincided with a buildup of Coinbase (COIN) shares. 

In 2023, the value of ARKW's shares rose by $17.6 million as a result of the actions of Cathie Wood. As such, the weight of Coinbase's stock in the combined portfolio of Ark Invest ETFs has increased to nearly 3.62% on Jan. 23rd as opposed to 2.73% at the start of the year.

COIN shares (purple) in Ark's ETF versus its price (orange). Source - Cathiesark.com

Overall, Ark appears to be primarily increasing its exposure to the Bitcoin market, specifically, Wood is well-known for her frequent $1 million prediction of the BTC price by 2030. 

Can the price of the GBTC increase further?

Similarly, Greenery Financial, a strategic investment firm, confirmed that it had downgraded its exposure to GBTC in favor of the ProShares Bitcoin Strategy ETF (BITO) due to the aforementioned dangers associated with DCG.

Any negative news, such as the sale of Cathie Wood's GBTC or DCG shares or the bankruptcy of DCG, will trigger the same concerns and doubts - of uncertainty - and likely lead to an expansion of the discount again," the firm noted in its SeekingAlpha note.

"With Bitcoin having no real catalyst in the short term and plenty of potential downside catalysts, there are plenty of risks here from the NAV side as well."

However, the prices of Bitcoin and GBTC may continue to increase over the course of Q1 from a technical perspective.

On the daily chart, GBTC has rebounded from its 50-day EMA (50-day EMA; the red line in the chart below) near $9.68 as a barrier.

A positive momentum trend would likely see it surpass the 200-day EMA (the blue line) near $15 if it maintained a positivity above the 50-day EMA line, similar to what happened in March-April of 2022.

GBTC daily price chart. Source - TradingView

The technical upside target is in line with what Pat Tschosik, a portfolio strategist at Ned Davis Research, expects about the Grayscale Bitcoin Trust.

He claims that by mid-2023, the price of GBTC would have to increase by a factor of at least 2, and this would narrow the existing price differential with the Bitcoin price. 

We advocate GBTC as a means of playing Bitcoin due to its potential NAV kicker rebate, this would increase if Bitcoin did as well as having a 35% rebate on NAV currently present. This was stated in a note to clients by Ned Davis Research.