In the word fud is on the rise, China’s moves to crack down on bitcoin trading dealt another blow to Cathie Wood’s ARK Innovation Fund, which outperformed all other U.S. equity funds last year but is now mired among the worst of its peers.
Wood, who has said that bitcoin will rally to $500,000, has slightly more than $1 billion invested in cryptocurrency trading firm Coinbase Global Inc, a position that makes up approximately 4.7% of her $21.7 billion fund. Shares of Coinbase fell more than 1.5% on Friday after Chine
FUD is one the rise
China’s moves to crack down on bitcoin trading dealt another blow to Cathie Wood’s ARK Innovation Fund, which outperformed all other U.S. equity funds last year but is now mired among the worst of its peers.
Wood, who has said that bitcoin will rally to $500,000, has slightly more than $1 billion invested in cryptocurrency trading firm Coinbase Global Inc, a position that makes up approximately 4.7% of her $21.7 billion fund. Shares of Coinbase fell more than 1.5% on Friday after Chinese regulators announced a blanket ban.
China’s move triggered a selloff in bitcoin, taking the value of the world’s largest cryptocurrency down more than 5% to approximately $42,475.
The declines come as several of Wood’s top holdings this year are floundering during a market rally that has pushed up the benchmark S&P 500 more than 18% for the year to date.
While shares of Tesla Inc, Wood’s top holding, are up 8% for the year, large positions in companies including Teladoc Health Inc and Zoom Video Communications Inc are down 20% or more over the same time amid a shift away from the stay-at-home technology stocks that dominated during the COVID-19 lockdowns of 2020.
ARK Invest did not respond to a request for comment on this story.
Overall, the ARK Innovation Fund is down 4.4% for the year to date, putting it in the bottom 100th percentile among the 595 other U.S. mid-cap growth funds, according to Morningstar.
Over the last five years, however, the fund is up an annualized 42.3% a year, placing it among the top 1 percentile in its category.
That strong long-term performance is likely what is keeping retail investors from selling their stake in the fund this year despite its poor showing, said Todd Rosenbluth, director of fund research at CFRA.
“ARKK is down for the year and has significantly lagged behind index-based growth ETFs yet most investors have remained loyal, likely due to fond memories of prior periods of relatively strong performance,” he said. “But as the recent period of underperformance persists it is harder to justify not considering alternatives.”
“This is the latest and perhaps final stage of the Chinese government’s crackdown on crypto,” said Jehan Chu, founder of investment firm Kenetic Capital in Hong Kong. “China has been consistent about its desire to rid itself of free trading in cryptocurrencies and emphasize more controlled projects.”
Once a cradle of the industry, China — under the Communist Party’s leadership — has since pushed crypto to the fringes with some of the harshest regulations among large economies. After chasing out local exchanges, banning crypto services by financial firms and more recently weeding out miners, the center of crypto power is now developed markets.
One telltale sign: On trading platforms Binance and FTX, volumes for popular derivatives known as perpetual futures surges on average at noon in New York, or 5 p.m. in London, according to data provider Kaiko.
The Bottom Line
Bitcoin dropped as much as 9% and Ethereum 13%, with losses paring somewhat as of 10:32 a.m. in New York.
It comes as countries around the world tighten the regulatory screw with the U.S. threatening industry players with lawsuits or cease-and-desist orders. But China’s stance is unequivocally hardline — dovetailing with the Chinese Communist Party’s bid to bring key industries to heel from online gaming and tutoring to high-frequency trading.