Cathie Wood Bets Against Bank of America and S&P Global on Coinbase

Cathie Wood’s Ark Invest made a substantial investment in the beleaguered crypto exchange Coinbase. The move comes after Bank of America downgraded the shares of the crypto company. At the same time, S&P downgraded Coinbase’s bonds. 

ARK Innovation ETF (ARKK), Cathie Wood’s flagship fund, added 74,792 shares of Coinbase (COIN), according to a letter to investors on Thursday. 

The investment in the crypto exchange was worth $3.28 million at the time of purchase. The move comes just a day after ARK added 33,756 shares of Coinbase, worth $1.45 million. 

Coinbase announced it would cut 950 jobs, or nearly 20% of its workforce, on Monday. The company, which makes money from crypto trading fees, has seen a substantial drop in income due to falling trading volumes. 

Despite falling profitability, Ark Investment’s purchase could be seen as a vote of confidence in Coinbase’s cost-cutting measures. Moreover, ARKK also added 69,060 shares of Tesla (TSLA), worth around $8.5 million.

However, major financial players don’t share Wood’s confidence in Coinbase. Bank of America’s analyst Jason Kupferberg downgraded Coinbase’s stock from Neutral to Underperform. He also cut his price target from $50 to $35. 

While applauding Coinbase’s cost-cutting measures, he said that the exchange is unlikely to reach its revenue targets. 

"Given the volatile crypto environment, we think it will be challenging for shares to tolerate a significant downward revision to consensus estimates," Kupferberg said.

At the same time, rating agency S&P Global lowered its debt rating of Coinbase’s bonds, pushing it further into junk bond status. S&P Global rated Coinbase’s debt as BB-, with a negative outlook.

The agency said that Coinbase’s treading volumes “weakened meaningfully” after the FTX collapse and that regulatory risks are rising.

Coinbase’s bonds are trading at around 50 cents on the dollar, meaning that investors believe there is a high chance of default. 

Coinbase has $3.4 billion in long-term debt, and its bonds start maturing in 2026. However, this could become an issue if the company continues to burn money. Coinbase’s cash dropped from $7.1 billion to $5 billion in 2022. 

Cathie Wood’s investment strategy emphasizes disruptive technology. Her fund became prominent during the COVID pandemic when tech stocks saw outperformed. However, higher interest rates changed the trend. ARK Innovation ETF was down 67% in 2022.

ARK’s investment in Coinbase could signal that Wood believes the company can handle its current struggles.