On Wednesday, Coinbase Global Inc. (COIN, Financial) made history by becoming the first-ever cryptocurrency exchange to go public. The direct listing initially had a reference price of $250 per share, but investors bid the stock up around 31% to close at $328.28 on the first day of trading before retreating slightly the following day:
The company operates a secure cryptocurrency exchange platform where users can buy and sell cryptocurrencies such as bitcoin and Ethereum. Founded by Brian Armstrong and Fred Ehrsam, the company operates remotely without any official physical headquarters.
Investors in Coinbase believe that the company is in a prime position to benefit from increasing adoption of digital currencies as an asset class. Much like credit card companies such as Mastercard (MA) and Visa (V), Coinbase is expected to grow as the volume of transactions on its platform increases in the U.S. and internationally.
Ark Invest takes a stake in the disruptive stock
Given the disruptive nature of Coinbase's business, as increasing use of decentralized cryptocurrencies would mean decreasing use of government-issued currency, it comes as no surprise that Catherine Wood (Trades, Portfolio)'s Ark Invest, which focuses on disruptive and momentum investing, would be among the first to pick up shares.
According to data published on the firm's website, three of Ark's funds bought nearly 750,000 Coinbase shares combined, worth about $246 million, on its first day of trading Wednesday. More than two-thirds of Ark's Coinbase stake resides its flagship exchange-traded fund ARK Innovation (ARKK, Financial), with the remaining third split between the ARK Next Generation (ARKW, Financial) and ARK Fintech Innovation (ARKF, Financial) ETFs.
Ark also sold some of its shares in Tesla (TSLA, Financial) on Wednesday, most likely to fund the purchase of the Coinbase shares. However, Tesla remains by far the largest holding in the firm's portfolios, making up more than 10% of ARK Innovation.
As of the end of March, Coinbase had approximately $223 billion in assets on its platform, making up 11% of the $2 trillion cryptocurrency market. Combined with its public listing, Coinbase is a clear frontrunner in crypto due to its ability to provide a superior user experience, including higher security and compliance.
Volatility will provide opportunities
On Wednesday, Catherine Wood (Trades, Portfolio), the CEO and chief investment officer of ARK Investment Management, appeared on Bloomberg BNN to discuss some of the firm's investments, including Coinbase.
The star stock picker among the disruptive investing community commented that Ark does believe Coinbase still has "miles to go," not only in terms of its upside potential but also in terms of when the stock will settle down from high levels of volatility.
According to Wood and her team's analysis, institutional interest will be a huge driver of growth in bitcoin and other cryptocurrencies in the coming years. As a new asset class, the impact of even a few larger institutions moving 5% of their assets tobBitcoin would have an enormous impact on the price.
On the other hand, Wood also noted, "We expect tremendous volatility in this, it's going to be unstable," in part because there will be a learning curve for investors and analysts to understand Coinbase, its business and how it makes money.
The company's opportunities are also "open-ended" opportunities because cryptocurrency trading is still a relatively new part of the market. In other words, while the potential for profitability is high, and Coinbase is a frontrunner, the extent of its growth will depend on how well it takes advantage of the opportunities available. Further volatility will also likely be driven by the growth of competitors, with market sentiment bouncing between growth and the inevitable reduction in cryptocurrency trading fees as platforms fight for market share.
When asked about whether Ark considered Coinbase more of a long-term opportunity or a "buy-the-dips" opportunity due to the expectation of high volatility, Wood responded that the firm's trades would "speak for themselves," but that they were "very optimistic" about the stock's ability to provide returns relative to their five-year targets.
Given that Ark bought Coinbase on the day of its direct listing, a time when market sentiment is often running high, it seems possible that the firm could consider this more of a long-term opportunity, with dips in the future providing opportunities to pick up more shares for cheap.
Disclosure: Author owns no shares in any of the stocks mentioned. The mention of stocks in this article does not at any point constitute an investment recommendation. Investors should always conduct their own careful research and/or consult registered investment advisors before taking action in the stock market.
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