Bullish ETF Provider Liquidates Bitcoin Holdings, Citing Regulatory And Tax Issues

The ARK Innovation ETF (ARKK), one of the first exchange-traded funds to invest in bitcoin, has divested much of its bitcoin holdings, citing regulatory and tax concerns, according to CNBC.

Last year, ARKK won ETF.com's "ETF Of The Year" award for fulfilling its goal of providing access to disruptive technology. It won this award in no small part due to its bitcoin allocation, which ranged between 6% and 10%, according to FactSet. At one point, bitcoin topped the list of the fund’s holdings.

In December of 2017, Catherine Wood, Ark Investment Management, CEO, said that bitcoin was a bigger idea than Apple.

ARK’s fund could not directly own bitcoin, so it purchased shares in Grayscale Investment's Bitcoin Investment Trust (GBTC) in 2015, when bitcoin traded below $250.

The only ETF that matched ARKK’s access to bitcoin was another of the firm's products: the ARK Web x.0 ETF, an internet-focused fund.

Bitcoin Drove Returns

ARK pared its exposure to bitcoin as the cryptocurrency's value plunged from its December highs.

The funds’ bitcoin holdings drove the returns last year, as both funds gained more than 87% percent in 2017, while GBTC jumped 1,550%.

However, Ark began paring its bitcoin exposure across both funds earlier this year, as the cryptocurrency market entered a bearish cycle. ARKK now holds 0.5% in bitcoin while ARKW holds 0.6%. The reason behind the pullback, according to the company, was tax and regulatory concerns.

Bitcoin’s performance most likely was a big driver as well. The cryptocurrency, based on GBTC indicators, began falling in value later in 2017 after soaring in 2016 and early 2017. GBTC, meanwhile, has fallen 37% so far in 2018, losing more than 63% in five months from its mid-December high.

Both Ark funds are up about 15% year to date.

Ark might have profited from bitcoin earlier in the year and pared its allocation as bitcoin’s price fell. If GBTC’s performance had spurred the change in direction, a bitcoin rebound could revive its allocations in the Ark funds.

Also read: Ark Investment CEO: bitcoin is bigger than Apple

ETF Access to Bitcoin Still Limited

The liquidation of Ark's bitcoin holdings makes it even more difficult for investors to gain exposure to the flagship cryptocurrency through traditional financial instruments.

Bitcoin ETFs, as CCN has reported, are waiting on the sidelines since the US Securities and Exchange Commission (SEC) has not yet approved any of these widely-anticipated investment vehicles.

GBTC -- which trades over-the-counter (OTC) -- is the closest product to a bitcoin ETF. Unlike most companies that have applied for bitcoin ETFs, this fund holds bitcoin directly instead of through derivatives contracts. The fund's value to investors has been up for debate since its shares almost always trade at a premium over bitcoin’s net asset value.

Images from Shutterstock

Last modified (UTC): May 21, 2018 11:39 PM

Lester Coleman

Lester Coleman is a media relations consultant for the payments and automated retailing industries.

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