Growth stocks are stumbling to start 2022, and fintech names aren’t immune to that trend, but exchange traded funds such as the ARK Fintech Innovation ETF (NYSEARCA: ARKF) can regain lost luster with some help from bitcoin and other digital assets.
To be clear, ARKF is an equity-based ETF and doesn’t feature direct bitcoin exposure, though it is actively managed and some ARK Investment Management ETFs have held stakes in the Grayscale Bitcoin Trust (GBTC), which is an index fund with physical holdings of bitcoin.
Rather, ARKF’s leverage to bitcoin and the cryptocurrency ecosystem stems from allocations to stocks that are crypto-correlated. One way of looking at crypto-correlated equities, many of which are innovative growth stocks that are under-represented in traditional technology benchmarks, is that these names are more responsive to price action in the crypto space than other equities.
Coinbase Global (NASDAQ:COIN), the operator of the largest crypto exchange and ARKF’s second-largest component at a weight of 9.05%, is a prime example of a crypto-correlated stock.
“Use-cases for crypto markets will continue to grow and new projects and tokens with more and different use cases will surface,” said JPMorgan analyst Kenneth Worthington in a report cited by Barron’s. “With these projects attached to tokens and Coinbase a leading exchange to buy and sell tokens, we see Coinbase as a leading direct beneficiary of crypto market growth.”
Obviously, by way of being crypto-correlated, stocks like Coinbase and Block (NYSE:SQ) — ARKF’s largest holding at 9.44% — could use some assistance in the form of digital currencies, namely bitcoin, rebounding. This year is still in its early innings, but there is budding optimism that crypto will outpace more traditional assets, and that could support upside for some ARKF components.
“Stocks, which have always traditionally made up the bulk of successful investors’ portfolios, are falling out of favour it seems as a way to create and build wealth, with digital assets taking over,” says deVere Group CEO Nigel Green. “Also, it’s surprising that it’s believed by investors that ‘other’ cryptocurrencies – and not the headline-grabbing, dominant Bitcoin – will out-run other asset class this year in terms of returns.”
ARKF currently holds 37 stocks. In addition to Block and Coinbase, the fund’s other crypto-correlated components include Robinhood (NASDAQ:HOOD) and PayPal (NASDAQ:PYPL), among others.
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.