ARK Invest’s New Plan for Bitcoin

July 7, 2021

ARK Invest has been a popular vehicle for investment in the market of recent with an emphasis on the tech sector. Much of the focus for this family of exchange-traded funds has been on innovative companies like Tesla Inc. (NASDAQ: TSLA) or even investment themes such as cryptocurrencies. Now ARK is doubling down on its cryptocurrency bet with its most recent SEC filing for a Bitcoin ETF.

Cathie Wood has been a force in the market for the past few years, with many comparing her to Warren Buffett but for tech stocks. The funds under her management posted impressive post-pandemic gains, with many doubling since last year. While there are some tough comps to overcome year over year to keep up performance, practically all the funds are posting a gain on the year thus far.

It should be noted that these funds are also very actively managed and equally transparent. Every day there is an end of day report with each fund listing its purchases and sales, and the ARK Invest site also provides an up-to-the-day ledger for the holdings of each of its ETFs.

This foray into Bitcoin was filed under the name The ARK 21Shares Bitcoin ETF, and the objective is “to seek to track the performance of bitcoin, as measured by the performance of the S&P Bitcoin Index, adjusted for the Trust’s expenses and other liabilities.” Essentially, the trust provides direct exposure to Bitcoin, and the shares of the trust are valued daily based on the index. The ETF trust will traded on the Cboe BZX exchange.

Here is how ARK describes Bitcoin and the Bitcoin Network in the filing:

The “Bitcoin network” is a decentralized, open source protocol of a peer-to-peer network. It is widely understood that no single entity owns or operates the Bitcoin network. Bitcoin is not issued by any government, by banks or similar organizations. The infrastructure of the Bitcoin network is collectively maintained by a decentralized user base. The Bitcoin network is accessed through software, and software governs the creation, movement, and ownership of “bitcoin,” the unit of account on the Bitcoin network ledger. The value of bitcoin is determined, in part, by the supply of, and demand for, bitcoin in the global markets for trading bitcoin, market expectations for the adoption of bitcoin as a decentralized store of value, the number of merchants and/or institutions that accept bitcoin as a form of payment and the volume of private end-user-to-end-user transactions.
Bitcoin transaction and ownership records are reflected on the “Bitcoin Blockchain,” which is a digital public record or ledger. Copies of this ledger are stored in a decentralized manner on the computers of each Bitcoin network node (a node is any user who maintains on their computer a full copy of all the bitcoin transaction records, the blockchain, as well as related software). Transaction data is permanently recorded in files called “blocks,” which reflect transactions that have been recorded and authenticated by Bitcoin network participants. The Bitcoin network software source code includes protocols that govern the creation of new bitcoin and the cryptographic system that secures and verifies bitcoin transactions.

The ETF will pay the sponsor, 21Shares, a unified fee of 95 basis points, and 21Shares will pay all operating expenses from that fee. Note that the ETF’s expense ratio is expected to match the sponsor fee.

Assuming the SEC approves ARK’s Bitcoin ETF, two of ARK’s major ETFs — ARK Innovation ETF (NYSEARCA: ARKK) and ARK Next Generation Internet ETF (NYSEARCA: ARKW) — will be major holders in major shareholders in this Bitcoin ETF. In a sense, this will provide more Bitcoin exposure to both of these funds and the holders of these funds will not have to deal with the expense ratio.

For now, it is a waiting game to see what the SEC says. A handful of other Bitcoin ETFs are chomping at the bit to enter the market, and while demand is there for crypto, it is likely that the first to market will win a sizable share. However, with the success that Wood has seen over the past few years, her name alone could win market share. We shall have to wait and see.

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