Institutional investors could be the secret ingredient behind the next wave of growth for cryptocurrencies like bitcoin.
Speaking at CFA Societies Australia 2021 Australian Investment Conference this week, ARK Invest CEO Cathie Wood suggested that investors and asset managers continue to underestimate the potential growth rates of tech’s biggest innovators and disruptors.
Ms Wood has previously been criticised for excluding FAANG companies (Facebook, Apple, Amazon, Netflix and Google) within her flagship ARK Innovation ETF, but she defended her strategy by arguing that the traditional valuation methods relying on discount rates and guesswork typically fail to catch the big tech stocks of the future.
“We're looking for the next fangs. These are long-in-the-tooth FAANGs, even though we think they still have a lot of good growth,” she said.
According to Ms Wood, exponential growth rates are quickly becoming characteristic of these companies and her firm's “non-consensus” approach to valuation is better positioned to identify stocks that sit in “the sweet spot of the ‘S’ curves of these technologies”.
“When we were making our Tesla assumptions, and when we understood that Tesla had taken a leaf from Apple's book and designed a chip, in this case an AI chip instead of a computer chip, we said, okay, if Tesla is right and can execute, then it will probably take the lion's share of the profits in the autonomous [drive] opportunity, which globally we think will be a $10 trillion revenue opportunity in 2030 from zero now.”
Asked about meme stocks, Ms Wood joked that the only meme stock that her ETF owned, or has ever owned, would be Robinhood.
“The meme stocks would not be our kind of investing; we’re focused exclusively on technology-enabled innovation and most [meme stocks] are dinosaurs,” she said.
Finally, asked about her expectations for bitcoin, Ms Wood predicted that bitcoin’s price would quickly become significantly higher should institutional investors begin to take it more seriously.
“If institutions around the world were to allocate 5 per cent of their portfolios to bitcoin, that allocation alone … would add roughly US$500,000 to bitcoin’s price today,” she said.
Regarding the regulation of crypto assets, Ms Wood forecast that the US Securities and Exchange Commission would soon approve the US’ first cryptocurrency-linked ETF.
“I think we’re getting closer to a bitcoin futures ETF mostly because the SEC is flagging it is much more interested in starting there,” Ms Wood said.