- ARK Innovation ETF added $3.28 million in shares of Coinbase on Wednesday.ย
- Shares of Coinbase are up 26% over the past week after cost-cutting measures.
- Still, Bank of America downgraded Coinbase shares, citing low profitability.ย
- Coinbaseโs bonds received a downgrade by S&P, pushing them further into junk bond status.
- ARK Innovation ETF was down 67% last year.
Cathie Wood’s Ark Invest made a substantial investment in the beleaguered crypto exchange Coinbase. The move comes after Bank of America downgraded the shares of the crypto company. At the same time, S&P downgraded Coinbaseโs bonds.ย
ARK Innovation ETF (ARKK), Cathie Woodโs flagship fund, added 74,792 shares of Coinbase (COIN), according to a letter to investors on Thursday.ย
Sponsored
The investment in the crypto exchange was worth $3.28 million at the time of purchase. The move comes just a day after ARK added 33,756 shares of Coinbase, worth $1.45 million.ย
Coinbase announced it would cut 950 jobs, or nearly 20% of its workforce, on Monday. The company, which makes money from crypto trading fees, has seen a substantial drop in income due to falling trading volumes.ย
Despite falling profitability, Ark Investmentโs purchase could be seen as a vote of confidence in Coinbaseโs cost-cutting measures. Moreover, ARKK also added 69,060 shares of Tesla (TSLA), worth around $8.5 million.
Bank of America and S&P Global Donโt Share Woodโs Outlook
However, major financial players donโt share Woodโs confidence in Coinbase. Bank of Americaโs analyst Jason Kupferberg downgraded Coinbaseโs stock from Neutral to Underperform. He also cut his price target from $50 to $35.ย
While applauding Coinbaseโs cost-cutting measures, he said that the exchange is unlikely to reach its revenue targets.ย
"Given the volatile crypto environment, we think it will be challenging for shares to tolerate a significant downward revision to consensus estimates," Kupferberg said.
At the same time, rating agency S&P Global lowered its debt rating of Coinbaseโs bonds, pushing it further into junk bond status. S&P Global rated Coinbaseโs debt as BB-, with a negative outlook.
The agency said that Coinbaseโs treading volumes โweakened meaningfullyโ after the FTX collapse and that regulatory risks are rising.
Coinbaseโs bonds are trading at around 50 cents on the dollar, meaning that investors believe there is a high chance of default.ย
Coinbase has $3.4 billion in long-term debt, and its bonds start maturing in 2026. However, this could become an issue if the company continues to burn money. Coinbaseโs cash dropped from $7.1 billion to $5 billion in 2022.ย
Cathie Woodโs investment strategy emphasizes disruptive technology. Her fund became prominent during the COVID pandemic when tech stocks saw outperformed. However, higher interest rates changed the trend. ARK Innovation ETF was down 67% in 2022.
On the Flipside
- ARKโs investment comes with risks, including volatility in crypto markets that could negatively affect returns. Coinbase is also saddled with sizeable debt, which could be an issue going forward.ย
- Woodโs unconventional investment strategy does not have many supporters on Wall Street.ย
Why You Should Care
ARKโs investment in Coinbase could signal that Wood believes the company can handle its current struggles.ย