Cathie Wood’s ARK Invest Eyes Canadian Crypto ETFs

Cathie Wood, CEO of ARK Invest.

Reed Young/ARK Invest

Star stock picker Cathie Wood wants crypto exposure. And if she can’t get a Bitcoin exchange-traded fund in the U.S.—at least right now—she’s willing to look across the border to Canada.

Wood’s asset-management company, ARK Invest, tweaked the prospectus of the $5.7 billion ARK Next Generation Internet ETF (ticker: ARKW) so the fund can hold cryptocurrencies through Canadian ETFs, a filing with the Securities and Exchange Commission shows.

ARK didn’t respond to a request for comment. The ARK Next Generation Internet ETF was off 1.6% in Monday trading; the fund is up 1.2% year to date.

A Bitcoin ETF in the U.S. has been elusive for Wood and other like-minded investors. In the past eight years, the SEC has rejected or delayed at least a dozen of applications, citing concerns over sharp volatilities and potential risks of market manipulation. ARK has teamed up with Switzerland-based 21Shares to file for one in June.

Canada and Europe, on the other hand, have forged ahead—allowing fund managers to offer cryptocurrencies in an ETF wrapper. A few holding Bitcoin and Ethereum were approved by the Toronto Stock Exchange this year.

The ARK Next Generation Internet ETF already holds a significant amount of Bitcoin through the close-end Grayscale Bitcoin Trust (GBTC), backed by Bitcoin in custodian. In the absence of an U.S. Bitcoin ETF, the Grayscale Trust——with more than $30 billion in assets——is often considered the best alternative.

Wood’s ETF currently has 5.5% of its assets——worth about $314 million——in the Grayscale fund, which is the second largest holding only behind Tesla (TSLA).

But ARK might be getting cautious about putting all its Bitcoin investments in the Grayscale fund, which can’t create or redeem shares as freely as a Bitcoin ETF. What that means is that the Grayscale fund can trade at a premium or discount to the price of Bitcoin, depending on investor demand for the fund itself.

From its 2013 inception until February, the Grayscale fund had been trading at a premium to Bitcoin—despite the digital currency’s bouts of volatilities. Investors piled on to the fund because it’s pretty much the only game in town.

But the Grayscale shares have become less desirable as the price of Bitcoin tanked and rival products appeared—including another close-end fund, the Osprey Bitcoin Trust (OBTC), and multiple Canadian Bitcoin ETFs. At its worst time, Grayscale traded 20% cheaper than its underlying Bitcoin assets.  

To be sure, the SEC hasn’t closed the door on Bitcoin ETFs, but Chairman Gary Gensler does have specific ideas about what he would like to see first. In August, Gensler suggested he is more open to ETFs that track Bitcoin futures rather than Bitcoin itself.

The Grayscale fund, backed by actual Bitcoin assets, is looking to convert to an ETF. If it gets regulators to sign on, any gap between its shares and Bitcoin’s value probably would be quickly arbitraged. If the Bitcoin futures ETFs came to market first, however, some investors would likely shift their assets from Grayscale to the futures ETFs, which could push down the Grayscale fund’s already discounted price.

Given all the uncertainties, it might be wise to diversify crypto holdings through the Canadian ETFs, and ARK isn’t the only one thinking that way. Last week, the $1.3 billion Amplify Transformational Data Sharing ETF (BLOK), which is actively managed and mainly invests in blockchain-related businesses, also bought a small stake in three Canadian Bitcoin ETFs. 

Write to Evie Liu at evie.liu@barrons.com

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