On Monday, Tesla announced that it had allocated, $1.5bn, or 9%, of its cash balance to bitcoin and would start accepting the cryptocurrency as payment for its vehicles.
The news sent the price of the cryptocurrency to new highs and has been greeted with enthusiasm by one of the electric car maker’s most prominent backers: ARK Invest’s Cathie Wood.
In the days following Tesla’s announcement, much attention has been given to a Reddit user who presciently posted in January that Elon Musk’s company had bought a significant amount of bitcoin. He has since said the post was hoax and that he was high on LSD when it was written, per the New York Post.
But the Reddit user was not the only one to foresee such a move. One of ARK’s ‘Big Ideas’ for 2021 and beyond, as set out in a paper published in January, was corporations using bitcoin as a way to diversify cash balances. And on a call with investors this week, the firm’s cryptocurrency analyst, Yassine Elmandjran, said that Tesla’s move represented a ‘cultural and institutional tipping point’ for the digital currency.
Tesla is the top holding in the $27bn ARK Innovation ETF (ARKK) at 9.13%, with the automaker’s 2020 share price gain of 695% helping drive the fund’s 152.2% annual return. A number of other ARK ETFs also own Tesla. In total, around 8.7% of the firm’s assets, which are north of $50bn, are allocated to Tesla, according to Morningstar.
ARK first highlighted the idea of firms using bitcoin as a way to diversify corporate cash back in August 2020, when business intelligence company MicroStrategy announced that it was investing $250m of its cash balance in the digital currency. At the time, ARK said the move signaled the start of a larger trend.
At the start of this month, MicroStrategy CEO and bitcoin evangelist Michael Saylor held a virtual conference called Bitcoin For Corporations, which discussed how to diversify corporate cash into cryptocurrency. The event had over 8,000 corporate attendees including SpaceX, signaling that Musk may have been watching Saylor’s efforts closely. The two also exchanged Twitter messages in December last year, a move that inspired the Reddit user’s post.
ARK does not own MicroStrategy in any of its ETFs but it does hold payments company Square – a top five holding in ARKK at 4.85% - which invested $50m, roughly equivalent to 1% of its cash into bitcoin in October 2020. Square users can also invest in bitcoin on the Square app.
In a September 2020 note outlining his long view on Square, ARK analyst Maximilian Friedrich wrote that by letting users invest and pay with bitcoin via its app, the company would be able to take significant market share in geographies with fragmented payments and banking infrastructure.
‘Bitcoin’s success could be Square’s success,’ he wrote.
On Tuesday’s webinar, Elmandjra highlighted ARK’s research on how the price of bitcoin could be affected by corporations making allocations to the digital currency, with the move lending legitimacy to the crypto asset as an alternative to cash.
According to ARK’s research, a 1% corporate cash allocation to bitcoin could have a $40,000 impact on the price of bitcoin. As more corporations make the move into bitcoin, ARK argues, the price of bitcoin will go up as will the support for more bitcoin use cases. In turn, those corporates will get a bigger return on their investment.
ARK has exposure to bitcoin via the $5.2bn ARK Next Generation Internet ETF (ARKW), which has around 4.46% of its assets allocated to the Grayscale Bitcoin Trust, its second largest holding after Tesla.
ARKK has previously owned Grayscale too, allocating 1% of assets to the cryptocurrency in 2015 when it was priced at $250, but selling out in 2018. In a December 2020 interview with Bloomberg, Wood said the firm was forced to sell when the position reached 10% of the fund, citing the tax treatment of gains from unqualified income and 40 Act rules. In the same interview she said that in the firm’s fully discretionary portfolios, which are not subject 40 Act rules, its bitcoin position was about 7%.
‘That is how optimistic we are on it,’ she said.
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February 11, 2021 at 01:22AM
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ARK's Cathie Wood is bullish about Tesla's bitcoin bet - Citywire USA
"wood" - Google News
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