With bitcoin being roughly 14 years old, it’s fair to say that crypto is a young asset class, and with that youth, some trials and tribulations are to be expected.
That includes some growing pains on the regulatory front. Investors are learning that in real time as the collapses of FTX and, more recently, Silvergate Capital, highlight the need for more investor protections in the crypto space. Market participants can reduce some of the “wild West” feel of crypto investing with equities, more specifically with exchange traded funds such as the ARK Fintech Innovation ETF (ARKF).
As its name implies, the actively managed ARKF is a fintech ETF, not a dedicated crypto strategy. However, there are obvious and potentially attractive intersections between crypto and fintech — a theme that ARKF ably taps into. ARKF could also prove relevant at a time when crypto regulations are a bipartisan issue and increasingly important to policymakers.
“Recent meltdowns of several high-profile crypto players have raised concerns for lawmakers and underscored the need for government oversight to protect investors, the economy and the government itself from risk. While legislators from both sides of the aisle see the need for regulation, there’s been little bipartisan consensus on exactly how and where to establish federal guidelines around the various digital currencies,” noted Morgan Stanley.
Even some crypto market enthusiasts argue that broader regulatory structures could improve the asset class’ adoption and usage cases while potentially mitigating disasters such as FTX.
For its part, ARKF is home to some of the more durable, reduced controversy crypto-correlated stocks. For example, Coinbase (NASDAQ: COIN) and Block (NYSE: SQ) combine for about 21.60% of the ETF’s portfolio. Those are among the firms that could benefit from more crypto regulations.
“Cross-border payments could see relatively rapid change enabled by faster clearing, which could lower transaction costs and potentially bring meaningful deposit growth of stablecoins. Meanwhile, building out new systems based on stablecoins could be the primary entry point into the broader payment ecosystem,” added Morgan Stanley.
Another point in ARKF’s favor, as noted above, is that the ARK ETF isn’t solely dependent on crypto as a driver of returns. There’s more to the ETF’s story, and that’s a positive. Take the case of QuickBooks and TurboTax parent Intuit (INTU), which accounts for 2% of the ARKF roster. Some analysts view Intuit as a quality undervalued stock.
“We also like the company’s internal innovation and synergistic acquisitions, which have earned the team an Exemplary capital allocation rating, she adds. Recent quarterly results and forecast were solid, too. Intuit stock is 19% undervalued relative to our $503 fair value estimate,” according to Morningstar.
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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.