Why Cathie Wood’s ARK Investments Skipped Buying the First Bitcoin Futures ETF Shares?

While investors bought huge amounts of the ProShares Bitcoin futures shares during the opening day, famous crypto bull Cathie Wood was not among them.

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Speaking at the Milken Institute Global Conference on Tuesday as part of the interview with Bloomberg media, Wood talked about the ETF’s debut and said Ark held off purchasing  ProShares Bitcoin Strategy ETF (BITO), citing tax implications.

“No, we did not [invest]. We’re looking at this very carefully […] there are some tax ramifications we’d like to understand more having to do with contango versus more normal backwardation,” 

Wood was talking about the structure of the forward curve, whereby contango refers to the case whereby the forward price of a futures contract is higher than the spot price. Backwardation is the opposite when the forward price of the futures contract is lower than the spot price.

Bitcoin futures are often in contango. That is a possible reason institutional investors such as Ark took a wait-and-see approach during the launch day of ProShares Bitcoin futures debut on the New York Stock Exchange market.

Jeffery Halley, a senior market analyst at Oanda, gave some important explanations regarding the impact of contango on futures contracts like the ProShares Bitcoin futures ETF.

“Longer-dated contracts are more expensive than the front month. That means you lose money rolling expiring contracts into the new front month. They probably want to see an orderly roll with decent two-way liquidity and a shallower contango,” he stated in his Wednesday note.

As a result, Halley saw a thin trading volume for ProShares Bitcoin futures ETF from institutional investors like Ark Invest on Tuesday. Such institutions did not actively participate in buying BITO shares.

Overall, Wood still remains confident in Bitcoin since she started investing in the cryptocurrency believing that it could become as huge as the monetary base of the US, which stood at trillions of dollars. Currently, cryptocurrencies have a market valuation of $2.5 trillion, with Bitcoin holding almost half at $1 trillion.

During the interview at the Milken conference, Wood said: “This is the new bank – digital wallet – and it’s going to be true in this country. It’s going to be true around the world.”

Wood’s Investment Strategy

Cathie Wood’s ARK is a heavy bitcoin investor.

As reported by Blockchain.News in June, Ark invest, the investment company run by long-time Bitcoin bull Wood, applied with the US Securities and Exchange Commission for an intent to launch an EFT to track Bitcoin futures, but cautioned that it was not likely to proceed until issues revolving tax liabilities for retail investors are resolved with market regulators.

Wood has been a long-time proponent of cryptocurrency. She has exposure to the ups and downs of cryptocurrencies through the performance of leveraged stocks like Square and Coinbase in her various innovation-focused ETFs.

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ARK Investment Submits Bitcoin Exchange-Traded Fund (ETF) Proposal

ARK Investment has joined the unlimited list of American businesses looking to roll out a bitcoin (BTC) exchange-traded fund. The firm submitted its ARK 21Shares Bitcoin ETF filing to the United States Securities and Exchange Commission (SEC) for approval on June 28, 2021.

ARKB Bitcoin ETF 

ARK Invest, a global asset management firm that specializes in thematic investing in disruptive technologies, has filed for a bitcoin exchange-traded fund with the United States Securities and Exchange Commission (SEC).

As stated in its Form S-1 filing with the regulator, ARK is collaborating with 21Shares to roll out the bitcoin ETF, which will trade on the Cboe BZX Exchange, Inc. The fund’s primary objective is to track the performance of bitcoin (BTC) and if it gets approved by the regulator, it would trade under the ticker symbol “ARKB.”

Unlike buying bitcoin on cryptocurrency exchanges, where an investor is responsible for safeguarding the login credentials to their wallet, ETF investors do not need to hold the physical bitcoin. As such, it significantly lowers the barrier to entry.

The prospectus reads:

“The Trust provides direct exposure to bitcoin, and the shares of the Trust are valued daily on the Index. The Trust provides investors with the opportunity to access the market for bitcoin through a traditional brokerage account without the potential barriers to entry or risks involved with holding or transferring bitcoin directly or acquiring it from a bitcoin spot market.”

ARK Aims to Break the Bitcoin ETF Barrier 

What’s more, ARK has made it clear that it has chosen Coinbase Custody Trust Company as its bitcoin custodian. 

In the risk factors section of the filing, ARK outlined the risks associated with bitcoin investments.

“The Bitcoin network has a limited history relative to traditional commodities and currencies, and there is no assurance that use or acceptance of bitcoin will continue to grow. A contraction in use or adoption of bitcoin may result in increased volatility or a reduction in the price of bitcoin, which would likely have an adverse impact on the value of the shares,” declared ARK.

Founded in 2014 by Cathie Wood, ARK Invest has experienced steady growth over the years, and its Asset under management now stands above $52 billion.

Though more and more institutional investors are now warming up to bitcoin and other cryptocurrencies, Wood remains one of the ardent fans of the super volatile digital asset class.

Unlike Canada and some other crypto-friendly jurisdictions, no company has so far been able to scale the SEC’s ETF hurdle, despite a plethora of filings and whether Cathie Wood’s ARK Invest will break the U.S. bitcoin ETF jinx remains to be seen.

At press time, the bitcoin (BTC) price is hovering around $34,816, according to CoinMarketCap.

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Bitcoin price volatility hits 2021 high as one analyst paints $15,000 target

The current cryptocurrency market scenario is only for traders that have an extremely high appetite for risks. But for the weak-hearted ones, analysts advise patience and caution ahead.

The outlook stands tall for Bitcoin (BTC) and Ether (ETH), the top cryptocurrencies by market capitalization that more or less behave as locomotives for the rest of the crypto market. As of Wednesday, the ETH/USD Realized Volatility on a 30-day timeframe has reached near its 2017 peak levels, according to data provided by Skew.

Bitcoin and Ethereum 30-day realized volatility reaches 2021 high. Source: ByBt.com, Skew

Meanwhile, ByBt.com shows Bitcoin’s 30-day volatility at its yearly high, suggesting that the benchmark asset remains at risk of wild price fluctuations in the sessions ahead. Simply put, the top two crypto-assets show a likelihood of moving in either direction with a higher degree of volatility. All and all that could mean both aggressive gains and losses for daytraders.

Buying in a falling market

The volatility alarm rings at the time when both Bitcoin and Ether have posted incredible recovery rallies following their recent price declines. In retrospect, the BTC/USD exchange rate plunged more than 50% after topping near $65,000 in April — a correction partially driven by Elon Musk’s anti-Bitcoin tweets and China’s crypto ban reiteration last week.

Ethereum, whose positive correlation efficiency with Bitcoin currently sits near 0.88, tailed the benchmark digital asset’s bearish correction. The second-largest cryptocurrency experienced a maximum of 60% decline in its market valuation — compared to its record high of $4,380 from mid-April.

But bulls saw opportunities in the said price dips, insomuch that they helped Bitcoin and Ether prices recover by up to 36.12% and 68.52% from their local price bottoms, respectively. Some analysts anticipated that the upside retracement would extend further based on supportive macroeconomic catalysts, mainly inflation fears.

Tech bull Cathie Wood, who heads Ark Investment Management, reiterated her $500,000 bitcoin price target after last week’s crash, calling the dip “a really great time to buy.”

Nevertheless, many also cautioned traders against buying during a bearish correction phase, especially after a yearlong price rally that increases the risks of profit-taking by long-term investors. Analysts at BiotechValley Insights Consulting Group noted that Bitcoin dropped hard even after the U.S. Consumer Price Index rose to 4.2%, stating that the crypto market is now going through an “anxiety stage.”

“I believe Bitcoin has a long way to fall from here,” one of the BiotechValley analysts wrote in a note. “I think it will slowly grind down the slope of hope with a periodic dead cat bounce.”

“I think it will slowly grind down the slope of hope with a periodic dead cat bounce.”

The group called for a $15,000-$16,000 price target for Bitcoin.

Lower risk-appetite? Just wait

Koroush AK, an independent market analyst, took a rather middle approach. He advised traders to wait for a clear bounce above short-term resistance levels before determining their market bias. Excerpts from his tweet:

“After a 60%+ market crash, it’ll take more than a small bounce for me to shift bias back to bull market bullish. Cautious until we capture $45,000 BTC and $3,400 ETH. [I] will be patient here. Don’t need to catch exact bottoms or sell exact tops to make money.”

The recent rebound has coincided with an increase in the number of outstanding Bitcoin Futures contracts from $11 billion to $11.88 billion, showcasing a steady climb in leveraged positions in the derivatives market. Meanwhile, more than $12 billion worth of long positions has been liquidated since the May 19 price crash.