ARK Crypto Fund Sinks to New Lows; Get the Fed on the Phone

In Brief

• Ark Invest's Catherine Wood stated that the Fed is making a policy mistake in an open letter.
• Wood is echoing views of several market players who believe that central banks should choose alternate approach.
• The U.S. Federal Reserve's next policy decision is due on Nov. 2.

Before the U.S. Federal Reserve’s (Fed) next policy decision on Nov. 2, Ark Invest’s Catherine Wood said the central bank was making a policy mistake that would result in deflation.

In an open letter, Cathie Wood has warned that “the Fed is making a policy error,” calling the recent unanimous decision to raise the Fed funds rate by 75 basis points unexpected.

Offering commodity data to the “data-driven” Fed, she said, “Without question, food, and energy prices are important, but we do not believe that the Fed should be fighting and exacerbating the global pain associated with a supply shock to agriculture and energy commodities caused by Russia’s invasion of Ukraine.”

Gold and digital gold lose sheen this week
Notably, the precious metal gold lost its sheen as expectedly high inflation numbers due Thursday also weighed down other commodity prices. Meanwhile, popularly considered digital gold by many, Bitcoin also started a weak week after Friday’s job data, slipping to around $19,000.

At the time of writing, BTC is trading in the 24-hour range of $19,011.81 and $19,432.81, with weekly and daily charts in the red on CoinGecko. The global cryptocurrency market cap also stands around $958 billion, down almost 2.5% in the past day.

The American investment management firm Ark Invest has remained bullish on BTC in the long run. Earlier, Ark Invest also predicted that by 2030, BTC would be a million dollars per coin.

ARK cuts investment in Coinbase
Ark was also one of the largest exposures to Coinbase in the marker. However, back in July, three Ark Investment Management funds sold slightly over 1.41 million Coinbase shares, giving up its title as the third-largest shareholder of the Nasdaq-listed exchange.

At the time of writing, Ark holds 3.52% of its portfolio as Coinbase, making it Ark’s tenth-largest holding.

The innovation-focused investment firm recorded at press time that its ARK Innovation ETF is maintaining a Net Asset Value of $36.32 with a negative YTD (yield to date) of 55.72%.

Ark’s Fintech Innovation ETF is also in the red with Net Asset Value as on date at $15.49 and YTD Returns at -57.18%.

Coinbase Global Inc is also trading close to $67, down from its 52-week high of $368.90, pushing down some of the major investments of the fund manager.

Riyad Carey, a research analyst at Kaiko, explained to CNBC that with Thursday’s CPI announcement, there appears to be considerable trepidation and de-risking across all markets. Carey predicts, “Bitcoin is moving closely with equities, and I’d expect that to continue as there haven’t been many crypto-specific catalysts in recent weeks. I also expect significant volatility on Thursday, with a move up or down depending on the inflation figure.”

Meanwhile, Ark Invest’s chief added that the “Downstream inventory accumulation seems to be overwhelming manufacturers and retailers.” She also hinted at the prolonged effect of the pandemic on the supply chain constraints that needs an alternate approach.

Growing discontent with central banks’ policy intervention
After providing companies’ data, Wood added, “The Fed seems focused on two variables that, in our view, are lagging indicators – downstream inflation and employment – both of which have been sending conflicting signals and should be calling into question the Fed’s unanimous call for higher interest rates.”

Jibing at the Fed with Sept. and early Oct. numbers, Wood said, “Could it be that the unprecedented 13-fold increase in interest rates during the last six months – likely 16-fold come Nov. 2 –has shocked not just the U.S. but the world and raised the risks of a deflationary bust?”

James Butterfill, head of research at CoinShares, is also of the view that significant market players disagree with the apex bank. He told CNBC, “We believe there is a building narrative that central banks are beginning to make policy errors,” as the Bank of England and European Central Bank also continue monetary interventions.

Bankers warn of a recession on the horizon
Inflation fears have also led Jamie Dimon, CEO of JPMorgan Chase, to warn that the U.S. will experience a recession shortly.

Dimon pointed out that while the U.S. economy is holding up, for now, it faces challenges of rising rates, soaring inflation, Fed tightening, and the conflict of the war.

He said, “These are very, very serious things which I think are likely to push the U.S. and the world — I mean, Europe is already in recession — and they’re likely to put the U.S. in some kind of recession six to nine months from now,”

Experts believe that risk assets, including crypto, remain in focus. However, Dimon said that he could not predict the length of the recession, suggesting that market players should instead evaluate various outcomes.

Dimon states, “It can go from very mild to quite hard and a lot will be reliant on what happens with this war. So, I think to guess is hard, be prepared.”

The current economic scenario has also made many think of the 2008 market slowdown behind the birth of Bitcoin and the crypto market.

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