ARK's female stock god 2021 latest "Bigidea": Bitcoin is ready!

This article is from Deep Tide TechFlow

ARK Invest is one of the most prominent investment firms in the U.S. market over the past year, and its founder and fund manager, Ms. Catherine Wood, is revered by countless investors as the "Tech Goddess."

Over the past five years, ARK's largest product, ARKK, has nearly averaged an annualized return of close to 40%, with all five funds experiencing gains of over 100% in the past year. The movements of ARK funds have also become the focus of the market, and the "copying homework investment method" based on it is becoming increasingly popular.

Since 2017, ARK Invest has released its "Big Ideas" report at the beginning of each year, inspiring investors to focus on technological breakthroughs and potential investment opportunities. In the "Big Ideas" released in 2020, ARK accurately identified investment opportunities in electric vehicles and Bitcoin.

The "Goddess of Stocks" is not only a staunch supporter of Tesla but also a loyal fan of Bitcoin.

In 2015, when many were still puzzled about what Bitcoin was, ARK Invest's ARKW personally entered the market, investing in GBTC issued by Grayscale Investments, when Bitcoin was priced at only $250.

For more on the growth story of the ARK Goddess of Stocks, see Deep Tide TechFlow's previous article: "The Queen's Investment Chessboard: Heavily Invested in Tesla, Betting on Bitcoin, Called the Female Buffett."

On January 27, ARK's 2021 Big Ideas was released as scheduled, where the Goddess of Stocks elaborated on the fundamentals of Bitcoin and the analysis of institutional allocation to Bitcoin in two of the fifteen chapters. According to ARK's expectations, Bitcoin will become part of the balance sheets of many institutions and publicly traded companies, welcoming a future filled with stars and seas.

The following is the report content regarding Bitcoin:

01 Bitcoin's Fundamentals

Supported by robust network fundamentals, Bitcoin prices have reached historic highs.

• As Bitcoin prices hit historic highs, ARK's research indicates that its network fundamentals remain healthy.

• Compared to search volumes in 2017, the price increase of Bitcoin is not driven by speculation. As Bitcoin gains more trust, some companies are considering it as an asset on their balance sheets.

• If all S&P 500 companies allocated 1% of their cash to Bitcoin, ARK estimates its price could increase by about $40,000.

With increased network support, Bitcoin's price reached historic highs at the end of 2020.

Market participants in Bitcoin have never been as long-term focused as they are now.

As of November 2020, about 60% of Bitcoin's supply had not moved for over a year, demonstrating that there is a broad base of long-term holders with strong conviction in the market.

The market and investor base for Bitcoin seem to be maturing.

The realized capitalization of Bitcoin (a measure of the holder's cost basis) has reached historic highs, indicating that early investors are profiting while new investors are building positions and creating higher price support levels.

Compared to 2017, the speculation surrounding Bitcoin now appears very subdued.

Relative to its price increase, Bitcoin's search interest is low. When its price approached historic highs, Bitcoin's Google search interest was only 15% of its historical peak.

Bitcoin's acceptance is increasing, laying the foundation for Ethereum and a new wave of financial experiments.

We believe that decentralized finance (DeFi) has positively contributed to the increased utilization of the Ethereum network.

By using Ethereum as "trust-minimized" collateral, market participants can eliminate the intervention of traditional financial companies and access financial services such as credit and lending, market making, trading, custody, and investment, even to synthesize dollars.

Bitcoin as "corporate cash" could play a pivotal role.

Both Square and MicroStrategy have invested in Bitcoin, incorporating it into their balance sheets, which points the way for publicly traded companies to deploy Bitcoin as a legitimate alternative to cash.

According to our research, if all S&P 500 companies allocated 1% of their cash to Bitcoin, its price could increase by about $40,000.

02 Bitcoin: Preparing for Institutions

ARK believes that Bitcoin's rapid growth has positioned it as part of asset allocation in investment portfolios for institutions.

• We believe Bitcoin offers the most compelling risk-return curve among assets.

• As our analysis indicates, its network capital could expand from about $500 billion to $1-5 trillion over the next five to ten years.

• We believe capital allocators should consider the opportunity cost of ignoring Bitcoin as a new asset class.

Bitcoin continues to gain credibility.

Regulators

• The OCC allows federally chartered banks and thrifts to provide custody services for crypto assets (6/22/2020).

• The OCC allows national banks and federal savings associations to hold "reserves" on behalf of clients issuing stablecoins (9/21/2020).

• The OCC allows banks to operate nodes on public blockchain networks to streamline payment functions such as processing, verification, and settlement (1/4/21).

Banks

• JPMorgan added major cryptocurrency exchanges Coinbase and Gemini as banking clients (5/12/2020).

• Singapore's largest bank, DBS Bank, announced plans to launch a cryptocurrency exchange (10/27/2020).

• Kraken became the first chartered U.S. bank for cryptocurrency exchanges (9/16/2020).

Institutional Investors

• Macro investor Paul Tudor Jones disclosed a 1% Bitcoin allocation (5/11/2020).

• Billionaire Stanley Druckenmiller bet on Bitcoin (11/17/2020).

• Fidelity Digital will hold Bitcoin as collateral for cash loans (12/9/20).

• Insurance giant MassMutual invested $100 million in Bitcoin (12/10/20).

Public Companies

• MicroStrategy replaced $500 million in cash with Bitcoin (7/20/2020).

• Square invested 1% of its assets in Bitcoin (10/8/2020).

• PayPal announced the launch of cryptocurrency buying and selling services (10/20/2020).

ARK believes Bitcoin should receive strategic allocation in institutional portfolios.

Unconstrained by traditional rules and regulations, and generally uncorrelated with the behavior of other asset classes, Bitcoin seems to have earned a strategic allocation in a well-diversified portfolio. Over the past decade, Bitcoin has been the only major asset with consistently low correlation to traditional asset classes.

Bitcoin's trading volume rivals that of large-cap stocks and is growing exponentially.

ARK estimates that Bitcoin's daily trading volume could exceed that of the U.S. stock market in less than four years and surpass the global spot forex market in less than six years.

Institutional investors can access Bitcoin through complex means.

In October 2020, Bitcoin's open interest, or the total circulating value of futures contracts, reached an all-time high on the Chicago Mercantile Exchange (CME). This figure grew tenfold, reaching nearly $1 billion in 2020.

Integrated into mature financial infrastructure, the Chicago Mercantile Exchange allows investors with various risk appetites to gain exposure to risk.

We believe Bitcoin has already gained some allocation in diversified portfolios.

Based on the daily returns of various asset classes over the past decade, our analysis indicates that when volatility is at its lowest, Bitcoin's allocation should be at 2.55%, and when returns are maximized, it should be at 6.55%.

In ARK's analysis, we conducted Monte Carlo simulations on 1 million portfolios composed of different asset classes, as shown in the figure, capturing the potential highest returns at given volatility levels, with stars indicating allocations related to the maximum Sharpe ratio and minimum volatility.

Institutional investment could have a substantial impact on Bitcoin's price.

According to ARK's simulated portfolio allocations, institutional allocations of Bitcoin between 2.5% and 6.5% could impact Bitcoin's price by $200,000 to $500,000.

*