Cathie Wood Bets Against Bank of America and S&P Global on Coinbase

Cathie Wood’s Ark Invest purchased $3 million in Coinbase, while Bank of America and S&P Global downgraded stocks and bonds.

Cathie Woods in an ark floating through the desert in front of a huge Coinbase logo.
  • 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 
  • Coinbaseโ€™s 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 Coinbaseโ€™s bonds.ย 

ARK Innovation ETF (ARKK), Cathie Woodโ€™s 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 Investmentโ€™s purchase could be seen as a vote of confidence in Coinbaseโ€™s 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 Donโ€™t Share Woodโ€™s Outlook

However, major financial players donโ€™t share Woodโ€™s confidence in Coinbase. Bank of Americaโ€™s analyst Jason Kupferberg downgraded Coinbaseโ€™s stock from Neutral to Underperform. He also cut his price target from $50 to $35.ย 

While applauding Coinbaseโ€™s 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 Coinbaseโ€™s bonds, pushing it further into junk bond status. S&P Global rated Coinbaseโ€™s debt as BB-, with a negative outlook.

The agency said that Coinbaseโ€™s treading volumes โ€œweakened meaningfullyโ€ after the FTX collapse and that regulatory risks are rising.

Coinbaseโ€™s 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. Coinbaseโ€™s cash dropped from $7.1 billion to $5 billion in 2022.ย 

Cathie Woodโ€™s 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

  • ARKโ€™s 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 
  • Woodโ€™s unconventional investment strategy does not have many supporters on Wall Street.ย 

Why You Should Care

ARKโ€™s investment in Coinbase could signal that Wood believes the company can handle its current struggles.ย 

This article is for information purposes only and should not be considered trading or investment advice. Nothing herein shall be construed as financial, legal, or tax advice. Trading forex, cryptocurrencies, and CFDs pose a considerable risk of loss.

Author
David Marsanic

David Marsanic is DailyCoinโ€™s journalist, focusing on Solana and crypto exchanges. David currently doesnโ€™t hold any crypto.

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