Ark Invest CEO, CIO and founder Cathie Wood has become a leading voice on Wall Street thanks to the successes of her firm's tech-focused exchange-traded funds. The largest of those, the Ark Innovation ETF (ARKK +0.54%), rose by nearly 500% between March 2020 and February 2021.
Since then, Wood has continued to look for diamonds in the rough. One area she has focused on is cryptocurrency, specifically the most valuable asset by market cap in the arena -- Bitcoin (BTC 1.48%).
Due to the high correlations that other cryptocurrencies have with Bitcoin, Ark Invest has been analyzing the trends in the token in an effort to gauge where the overall crypto economy is headed. And on a recent episode of her YouTube video series In The Know with Cathy Wood, she discussed some details about her views on the cryptocurrency market in general, and the path she expects Bitcoin will follow.
CRYPTO: BTC
Key Data Points
Things to know
For the first time in Bitcoin's history, there were nine consecutive weekly declines in its value. Wood speculated that it could be oversold, or that Bitcoin is being stretched too thin.
In the last month, the Terra blockchain completely blew up and is now worthless. The implosion of a $60 billion ecosystem spread fear throughout the crypto market, and Bitcoin wasn't spared.
Wood believes that the collapse of Terra's stablecoin has set a new precedent for the federal government to take a hard look at regulating stablecoins. As a part of the widely publicized depegging of Terra from the U.S. dollar, unanswered questions persist over a reserve of $3.5 billion Bitcoin that was sold to try and help maintain the $1 peg. Ark Invest thinks that this caused Bitcoin to drop from $40,000 to $30,000 at the time.
In addition, Wood expressed that despite hitting an all time high in correlation with the Nasdaq in early May, Bitcoin has recently started to trade separately from the tech sector. There were a series of moves made by the Nasdaq to the upside while Bitcoin tumbled. There wasn't much reasoning to be found but was pure interest from Wood and her team.
CRYPTO: BTC
Key Data Points
Now the good part
According to Wood, Ark Invest's cryptocurrency analysts have found that one of the simplest metrics -- the 200-week moving average -- has proven to be one of the most consistent levels of support for Bitcoin. It's recent decline has now put it under the 200-week moving average. This is only the third time in history that Bitcoin has fallen beneath this support.
Moreover, Wood provided statistics that show short-term holders (those who owned Bitcoin for less than a year) have almost completely capitulated. Long-term holders (those who have held Bitcoin for more than a year) comprise almost two-thirds of the entire Bitcoin investor class, and they are largely still holding on.
When short-term holders sell at this level, it often signals a bottom for Bitcoin's price. Ark Invest focuses on a statistic known as "market value to realized value" (MVRV) to quantify when crypto holders are selling their positions at a loss. MVRV values below 1 signal that holders are selling without making a profit. The MVRV of short-term holders has been below 1 for almost all of 2022.
It isn't uncommon for Bitcoin's MVRV to slip below 1 for many months. It was under 1 for almost all of 2018. Yet when this mark was reached, it has in the past been a sign that the market had nearly hit its floor.
Bitcoin's MVRV has fallen below 1 during four periods in its history. After it dropped below 1 in 2011, the price of Bitcoin went from around $3 to almost $115. In 2015, it fell below 1 again. That was followed by a price run-up from a few hundred dollars to a peak of just under $20,000 in 2017. The MVRV was under 1 again in early 2019, after which it rose by nearly 300% in six months. And most recently, after its MVRV dropped below 1 in March 2020, Bitcoin went on a tear, surging from roughly $5,000 to a high of around $57,000 before falling again.
Timing actually isn't everything. Nobody can time any asset market perfectly. But Wood and her team believe the bottom is in for crypto. That isn't to say that it won't trade sideways for a while, but they believe there is little room for Bitcoin and other cryptocurrencies to fall more current levels.
