What Is The “Tesla-Bitcoin-ARK” Connection?
According to several market commentators, the respective investments by ARK into Tesla and Bitcoin, and those by Tesla into Bitcoin (whose link we discussed last week already) bring with it a serious domino effect risk for stock markets given ARK’s size.
The fall of either Bitcoin or Tesla could stumble the other two. Some are convinced that there is a “Tesla-Bitcoin-ARK” connection and that a crypto selloff could result in a tech selloff.
The investment manager of the moment
Cathy Wood, the CEO and Chief Investment Officer of ARK Investment Management LLC is a Wall Street superstar. According to a puff piece in the Economist this week, she is simply the investment manager of the moment. Last year the stocks and funds that she picked returned a very impressive 152% profit.
Her ARK Innovation Exchange Traded Fund is now the largest actively managed equity fund worldwide. However, with such a high position you tend to see the sharks swimming around you, hoping for your demise and for their chance to take the top position.
And thus, given the fact that ARK is highly invested in both Tesla and Bitcoin and that both positions have dropped in the past week, the sharks are now out to get ARK.
According to some analysts, the size of the ARK fund (it has $60 billion in Assets Under Management, or AUM), in combination with the size of the investment in both Tesla and Bitcoin, could create a powerful domino effect where the slump of any of those three could infect the other.
Ms Wood is now getting attacked from all sides that her positions in both Bitcoin and Tesla are risky, certainly after Elon Musk, CEO of the world’s largest electric vehicle maker, decided to invest part of his cash pile in Bitcoin as well. And not a small amount, but no less than $1.5 billion.
Problem for Ms Wood is that Bitcoin is some 20% off it’s February peak already and Tesla is trading at values last seen in December. Popularity changes fast in Wall Street and so her fund is seeing withdraws quicker than it can manage to report. The Street claimed over the weekend that ARK saw $443 million withdrawn in the past few days, to which one has to add the record $465 million that was taken out earlier this week.
Tesla meanwhile is having problems of it’s own. Because of Musk’s decision to invest directly into Bitcoin, the Tesla stock reacts to Bitcoin’s price as well. This is because classic finance still controls the MSM and thus any Bitcoin decline is celebrated and splashed across front pages (as we’ve also shown earlier last week).
Short sellers have positioned themselves likewise and are now swimming near Tesla and Bitcoin already.
Market data from S3 partners shows that Tesla short sellers are up to $1.18 billion in the year, while we know that hedge fund positions on Bitcoin shorts are around the same.
Anyone know how ARK shorts are doing? Perhaps someone should tell those guys on WallStreetBets.