ARK Invest CEO Cathie Wood: ‘The Financial Revolution Is DeFi’


Catherine Wood, Founder, CIO, and CEO at ARK Investment Management, LLC (aka “ARK” or “ARK Invest”), recently shared her thoughts on decentralized finance (DeFi).

Her comments were made during a conversation with John Quelch, dean of the University of Miami Herbert Business School. Wood was introduced by her friend, mentor, and former professor distinguished American economist Dr. Arthur Laffer. The video of this interview was released on March 1 on University of Miami Herbert Business School’s YouTube channel.

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When Quelch asked Wood how she saw the crypto market evolving, Wood mentioned three ideas that would be covered in detail in the 2022 edition of her firm’s annual research report Big Ideas: money revolution (cryptocurrencies), financial revolution (DeFi), and the internet revolution (metaverse).

With regard to the financial revolution, she had this to say:

The financial revolution is DeFi and really just taking all the middleman out of the financial ecosystem… a real threat to all of us.

I mean, we know that the combination of digital wallets and DeFi is going to hollow out a lot of financial institutions. May already be because a lot of lending and saving is taking place on DeFi because of lower loan rates and higher saving rates. So that’s a compelling combination.

So we think DeFi is scaling enormously right now. And I think we’ve had very good tests. May of last year, we had Bitcoin cut in half, Ether cut by more than half. I was waiting for the leverage in the DeFi system to topple it, and it didn’t. And whatever makes these networks, whatever doesn’t kill them is making them stronger. Anti-fragile is a word often used.

According to a report by Insider, on February 1, Wood was present at an event/talk hosted by Public (a competitor to Robinhood that allows users to invest in stocks, funds, and crypto), which allowed retail investors and traders to ask her questions.

When Wood was asked which of these top two cryptoassets she is more bullish on, Wood replied that it is not really possible to compare the two and went on to say:

We maintain high conviction in both.

With regard to Bitcoin, she called it “the most profound application of public blockchains, the foundation of ‘self-sovereign’ digital money.” As for Ethereum, she said that it “emerged in 2021 as the predominant smart contracting platform.”

Wood was also asked about DeFi and NFTs. She answered:

While ARK has conviction in DeFi and the utility of NFTs for various use-cases, including gaming environments, we do not actively trade NFTs as of today in any of our strategies.

On 25 February 2021, Wood talked about Bitcoin while speaking as part of a panel for the Bloomberg Crypto Summit.

With regard to Bitcoin’s market cap potential, this is what she had to say:



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We are so early. That $950 billion dollar market cap gives you a sense of network value, gives you a sense of how early we are. And the various use cases that we have written about… as institutions move in, where an appropriate asset allocation will be given risk and return parameters, various ones, and we also have dimensions, the use cases, the insurance policy that this represents against not only unhinged monetary policy but outright confiscation of wealth in other countries, demonetisation, trade settlement…

When you aggregate all of these use cases for Bitcoin and assume a conservative allocation, let’s say that in the terms of cash or insurance policies, you do get into the trillions of dollars of market cap potential out there.

According to a report by MarketWatch, Wood also said that Bitcoin could one day replace bonds:

You think about the traditional 60/40 stock-bond portfolio, but look what’s happening to bonds right now. If we are ending a 40-year secular decline in interest rates, that asset class has done its thing. What’s next? We think crypto could be the solution…

We know there’s a concern given all the quantitative easing and the no-rules based monetary policy out there. Fixed income has done 40 years of really hard work… If Bitcoin represents a new asset class, why not invest in it.

The report went on to say that Wood also talked about how the fall of the U.S. dollar index has acted as a positive catalyst for Bitcoin but not for gold:

The dollar dropping 7% on a trade-weighed basis last year and falling further this year is another stimulus. It should be a stimulus for gold, but Bitcoin is getting the incremental flows that might go to gold.

On 24 February 2021, the ARK Invest CEO also commented on Bitcoin, this time during an interview on Bloomberg TV.

She said:

We’re very positive on Bitcoin again, very happy to see a healthy correction here. No market is straight up; everyone should know that. Everyone should have some dry powder for for days like these, and I’ve been saying that for a while. We see so many use cases of Bitcoin, but yeah probably the the most important use case is an insurance policy around the world against confiscation of wealth, and that can happen in two ways.

It can happen with inflation. Bitcoin, I think, is the best hedge against inflation out there far none and better than gold.

And it can happen outright. I mean, when you saw in the Middle East a prince seize his own relative’s wealth… everyone should know [that] if you think there’s a 5% chance of that happening, you should put 5% of your portfolio or your wealth into something like Bitcoin…

And on 2 February 2021, in an interview with Yahoo Finance, Wood said that ARK Invest was not shocked by institutional investors’ move into crypto:

We have been expecting institutions to start moving into Bitcoin and other cryptoassets, but primarily Bitcoin, the most secure of the blockchains, because if you look at the correlation of Bitcoin’s performance relative to any other asset class, it has the lowest correlation, meaning if you buy some Bitcoin, you will further diversify your portfolio and increase your returns with lower risk...

Institutions look for that low correlation. Bitcoin has it. That’s clear. We have 10 years of history now.

Disclaimer

The views and opinions expressed by the author, or any people mentioned in this article, are for informational purposes only, and they do not constitute financial, investment, or other advice. Investing in or trading cryptoassets comes with a risk of financial loss.




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