The Art of Rebalancing: Ark Invest Continues Selling Coinbase and Buying Block
The cryptocurrency market has experienced significant volatility this year, attracting attention to Ark Invest, known for investing in cryptocurrencies and related industries. The media has reported on Ark Invest’s substantial sales of Coinbase (COIN) and Grayscale Bitcoin Trust (GBTC) holdings, as well as its purchases of Jack Dorsey’s fintech company Block (SQ). Has Ark Invest changed its outlook on the fundamentals? Or is all of this just the art of rebalancing?
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Cryptocurrency Market Warms Up, Coinbase Stock Rises 341%
What is Rebalancing?
Ark Invest’s Rebalancing
Cryptocurrencies have performed remarkably well this year, with Bitcoin rising from 166K at the beginning of the year to its current level, an increase of 156%. This outperforms the 52% increase in the tech-heavy Nasdaq this year. The stock price of Coinbase, a cryptocurrency exchange, has skyrocketed from $34 at the beginning of the year to over $160, a staggering increase of 341%.
Block (SQ), also favored by Cathie Wood, experienced a temporary drop to $40 before starting to rebound recently, with a modest 16% increase so far this year.
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Cathie Wood defends Block, Ark Invest continues to increase holdings in Block
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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, based on stock prices of $70 and $150.
COIN is the top holding for ARKK, accounting for 10.57% of the fund’s weight, while SQ (BLOCK) ranks sixth with a weight of 6.37%.
Rebalancing is an important mechanism for long-term asset allocation. As the name suggests, it involves rebalancing the investment portfolio.
To illustrate with the most common traditional asset allocation of 60% stocks and 40% bonds:
Initial: An investor allocates $100, with $60 in stocks and $40 in bonds.
Final: The $60 in stocks increases to $90, while the $40 in bonds decreases to $30. The total assets rise to $120.
At this point, due to the increase in the stock price, its weight has deviated from the target of 60% and is now $72. Therefore, a portion of the stocks needs to be sold, and $18 worth of bonds needs to be purchased to bring the weight back to 40%.
The design of rebalancing not only maintains the original asset allocation but also has the effect of adding to positions when prices are low and taking profits. It is an important task for long-term asset allocation investors.
As an asset management company, rebalancing is undoubtedly an important issue for Ark Invest. Stock selection and allocation for the fund have certain criteria that need to be followed and adjusted continuously.
With Coinbase’s stock price more than tripling this year, its weight in the portfolio is bound to increase significantly. At this point, Ark Invest can only sell its holdings and use the cash to buy other stocks with relatively lagging price performance. That’s why we have seen Ark Invest selling Coinbase and Grayscale’s Bitcoin Trust (GBTC) this year and adding positions in BLOCK (SQ) and Robinhood (HOOD)!
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Robinhood’s cryptocurrency trading volume surges, Ark Invest continues to increase positions
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Further Reading
BlackRock Meets with SEC Again, Coinbase’s Role to Change to “Primary Execution Agent”
Cryptocurrency Market Changes: Ark Invest Sold Large Amounts of Coinbase and GBTC Shares Last Week.
