Cathie Wood and Ark Invest have made a name for themselves with their bold investment strategy of targeting companies on the bleeding edge of disruptive technological innovation. One of those is Coinbase Global (COIN 5.68%), a leading cryptocurrency platform offering a range of products to retail and institutional investors.
Ark Invest has been one of Coinbase's biggest fans since its initial public offering (IPO) in 2021, purchasing around 7 million shares at the time. But last month, the investment firm sold a chunk of its position. Naturally, this raises the question: If Cathie Wood thinks it's time to sell, does that mean you should, too?
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Necessary context to keep in mind
Before jumping to conclusions about why Ark Invest unloaded shares in December, we need to add some context. While the selling news might raise eyebrows, the actual magnitude of the sell-off is minor relative to the overall size of its position in Coinbase.
In December, Ark sold 1,348,527 Coinbase shares. Yet the firm still owns more than 8 million shares spread out across its various exchange-traded funds (ETFs). Those 8 million shares are worth more than $1.5 billion, representing a 4% stake in the company. In addition, Coinbase remains Ark's top holding, making up more than 9% of its entire portfolio.
The most apparent reason Ark sold around 14% of its Coinbase holdings is that it needed to lock-in some profits. Looking at its transaction history, Ark went on a buying spree in late 2022 and early 2023, purchasing 4.4 million shares when prices were less than $60. These shares today have nearly tripled in value as Coinbase's stock climbed more than 400% last year.
Considering that the bulk of Ark's purchases occurred when Coinbase's stock price was hovering around $250, meaning that most of its position is currently at a loss, it makes sense to secure some profits. In fact, when Ark sold more than 1 million shares earlier this past summer, Cathie Wood publicly stated, "We are simply taking profits and reallocating the capital to perhaps some laggards" and remain "very positive on Coinbase."
Coinbase is still a strong buy
When tracking the buying or selling activities of major investment firms, it is crucial to remember that their objectives differ from those of individual investors. For instance, Ark's primary goal is to attract more investors to its funds to generate greater revenue from management fees. To achieve this, it must optimize its performance by timing the market and providing the best possible returns. However, this strategy is unfeasible for most investors since Ark has extensive resources in terms of a dedicated team of analysts and cutting-edge technology. Not to mention, trying to time the market usually introduces more risk.
Furthermore, it's crucial to underscore that Ark Invest and Cathie Wood maintain an overwhelmingly optimistic outlook on Coinbase for the long term. They consistently emphasize several key drivers, such as the increasing clarity surrounding cryptocurrency regulations, a rising tide of institutional interest in digital assets, and a fortified position in the U.S. market as many of its competitors grapple with legal challenges. When coupled with the cryptocurrency market's long-term exponential growth, Coinbase's strategic business model overhaul, and its pivotal role in the race to bring a spot Bitcoin ETF to market, the company aligns seamlessly with the criteria Wood and her team use when adding a stock to their investment portfolio.
While Ark Invest's sales of Coinbase shares might raise questions, a closer examination reveals a more nuanced perspective. Ark remains optimistic about Coinbase's long-term potential, and the selling should be seen as a calculated adjustment rather than a lack of confidence. Without needing to attract new customers and remain competitive in the financial investment landscape, investors like you and me are better off sticking with Coinbase for the long haul.
