The art of rebalancing: Ark Invest continues to sell Coinbase and buy Block

This year, the cryptocurrency market has experienced significant volatility. Ark Invest, known for investing in cryptocurrencies and related startups, has attracted a lot of attention. The media has reported on its large sales of Coinbase COIN and Grayscale Bitcoin Trust GBTC holdings, as well as purchases of Jack Dorsey's fintech company Block SQ. Has Ark's view on the fundamentals changed, or is all of this just the art of rebalancing?

Crypto Market Rebounds, Coinbase Stock Price Surges 341%

Cryptocurrencies have shown impressive performance this year, with Bitcoin rising from 166K at the beginning of the year to the current level, a 156% increase, outperforming the 52% increase of the tech-heavy Nasdaq this year. The stock price of the exchange Coinbase has skyrocketed from $34 at the beginning of the year to over $160, a whopping 341% increase.

Similarly, Block SQ, favored by Cathie Wood, dropped to $40 before November but has recently started to rise, with only a 16% increase so far this year.

Cathie Wood defends Block, Ark continues to increase holdings in Block stocks

According to data from ArkTrace website, Ark's flagship fund ARKK bought 256,224 shares of SQ in December and sold 826,340 shares of COIN, equivalent to $17.9 million and $123 million respectively at $70 and $150 per share.

COIN is the top holding in ARKK, accounting for 10.57% of the fund's weight, while SQ BLOCK ranks sixth with a weight of 6.37%.

What is Rebalancing?

Rebalancing is a crucial mechanism for long-term asset allocation. As the term suggests, it involves rebalancing the investment portfolio.

Let's use the most common 60% stocks and 40% bonds traditional asset allocation as an example:

Initial: An investor allocates $100 with $60 in stocks and $40 in bonds.

Final: The $60 in stocks rises to $90, and the $40 in bonds falls to $30. The total assets increase to $120.

At this point, due to the increase in stocks, it has deviated from the 60% weight to $72, so some stocks need to be sold; conversely, $18 of bonds need to be purchased to bring the weight back to 40%.

Rebalancing is designed not only to maintain the initial asset allocation but also to have the effect of adding positions at lower levels and taking profits, making it an important task for long-term asset investors.

Ark's Rebalancing Approach

As an asset management company, rebalancing is undoubtedly one of Ark's important tasks. Stock selection and allocation in the fund have certain guidelines to follow, and adjustments need to be made continuously.

Given Coinbase's more than triple increase this year, its weight must have significantly increased, which means selling some of its holdings and using the cash to buy other stocks that have underperformed. This is why we have seen Ark selling Coinbase and Grayscale's Bitcoin Trust GBTC this year while adding positions in BLOCK SQ and Robinhood HOOD!

Robinhood's cryptocurrency trading volume has surged, and Ark continues to increase its holdings.