Understanding Your Digital Asset Exposure

By David Puell, Grant Banko, Lorenzo Valente

Digital assets have changed the way financial markets work by offering new ways to transfer value and provide financial services, all without relying on traditional banks. These assets are purely digital and exist only online. They use advanced technology, like cryptography and distributed networks, to make transactions safe, transparent, and open to everyone. Digital assets can be easily transferred, their ownership verified through encryption, and they can be divided into smaller units that retain individual value. Examples of digital assets include cryptocurrencies like Bitcoin and Ethereum, tokens that represent partial ownership of things like real estate or artwork, digital rights for intellectual property, and non-fungible tokens (NFTs), which are unique digital items that can represent ownership of both digital and physical things.

Digital assets are transforming traditional finance and enabling entirely new business models. By providing instantaneous, borderless access to financial systems and investment opportunities, they are democratizing global finance. They also reduce transaction costs and time delays, making processes more efficient and cost-effective. Businesses built around digital assets operate with significantly lower expenses and higher margins than traditional counterparts, thanks to the inherent efficiencies of blockchain and distributed ledger technology.¹

The first retail investment fund manager to invest in bitcoin—in 2015, as shown below— ARK Invest believes that digital assets will become the new foundation of financial technology.

Source: Glassnode. As of November 30, 2024. Past performance is not indicative of future results. For informational purposes only and should not be considered investment advice or a recommendation to buy, sell or hold bitcoin or any other cryptocurrency.

By operating through transparent networks, decentralizing finance, and empowering businesses and individual investors and consumers, digital assets have the potential to redefine the global financial landscape and fundamentally alter how people and institutions access and manage capital.

President-elect Donald Trump soon will be the first openly pro-cryptocurrency President of the United States and will join 276 pro-cryptocurrency representatives in the House and 20 in the Senate.² By January, pro-cryptocurrency lawmakers will outnumber their anti-crypto counterparts across both legislative chambers, setting the stage for a potentially more favorable regulatory environment.

Many expect that the incoming presidential administration and congress will bring favorable regulatory changes to the digital assets space. Key areas of potential impact include the U.S. Securities and Exchange Commission (SEC), where a more crypto-friendly stance could displace Chair Gensler’s “regulation by enforcement” approach and bring long-awaited transparency and predictability to the digital asset sector. Additionally, a reopening of the initial public offering (IPO) window could offer promising opportunities for late-stage digital asset companies like Circle and Kraken, potentially drawing in a broader base of institutional investors. On the legislative front, the Financial Innovation and Technology for the 21st Century Act (FIT21) and the Clarity for Payment Stablecoins Act of 2023—both have passed in the House of Representatives—seek to define jurisdictional boundaries between the SEC and the Commodity Futures Trading Commission (CFTC). These bills would establish clearer frameworks for the exchange and custody of digital assets and stablecoins, giving traditional institutions a defined path to participate in digital asset markets. Additionally, repealing Staff Accounting Bulletin 121 (SAB-121), which restricts traditional financial institutions from holding digital assets, is likely to be a legislative priority, further paving the way for institutional engagement with digital assets.

ARK Funds' Exposure To Digital Assets

While investing directly in cryptocurrencies remains a popular option for gaining exposure to digital assets, many investors seek to benefit indirectly through publicly-traded companies that operate within the digital asset sector. The ARK Innovation ETF (ARKK), ARK Next Generation Internet ETF (ARKW), and ARK Fintech Innovation ETF (ARKF) all offer exposure to momentum in digital assets. One prominent example is Coinbase (COIN), the largest US-based cryptocurrency exchange. Coinbase is known for its regulatory compliance as a US publicly-listed company and gives investors a structured and compliant way to access the growth of digital assets without directly holding individual cryptocurrencies. ARK ETFs ARKK, ARKW, and ARKF all hold and offer investors exposure to COIN, which has rallied significantly in the wake of Trump’s victory.

Coinbase’s strengths lie in its diversified ecosystem, which spans secure cryptocurrency storage, institutional trading, and an increasing array of decentralized finance (DeFi) applications. As one of the few regulated, publicly-traded companies in the cryptocurrency sector, Coinbase represents a relatively stable approach to participating in digital asset growth. Its revenue model benefits from increased trading volume and broader adoption of digital assets, making it a key vehicle for investors seeking compliant exposure to the cryptocurrency space.

ARKK, ARKW, and ARKF also hold Block (formerly Square) (SQ) and Robinhood (HOOD), which provide additional exposure to digital wallets and emerging digital payment systems. Block’s Cash App integrates Bitcoin, allowing users to buy, sell, and transact in cryptocurrency; and Robinhood offers a cryptocurrency trading feature, making both companies key players in the broader digital finance ecosystem.

Conclusion: Access To The Digital Asset Wave And Beyond

As digital assets and blockchain technology continue to reshape global markets, understanding your exposure is essential. By investing in ARKK, ARKW, and ARKF, investors gain exposure to the potential growth of digital assets and to key players in the broader digital finance ecosystem. Importantly, ARKW and ARKF also offer exposure to digital assets by allocating to the ARK 21Shares Bitcoin ETF (ARKB) and 3IQ Ether Staking ETF (ETHQ/U), as shown below.

As of December 2, 2024. The above list is only a partial list of holdings for each fund. For a complete list of ARKK’s holdings click here, for a complete list of ARKW’s holdings, click here, and for a complete list of ARKF’s holdings click here. Holdings are subject to change. Please note that neither ARKB nor ETHQ/U are a fund registered under the Investment Company Act of 1940, as amended (“1940 Act”), and are not subject to regulation under the 1940 Act, unlike most exchange traded products or ETFs. An investment in either ARKB or ETHQ/U involves significant risks, may be subject to extreme volatility and investors could lose their entire investment. Thus, ARKB and ETHQ/U are not suitable for all investors.

Important Information

Investors should carefully consider the investment objectives and risks as well as charges and expenses of an ARK ETF before investing. This and other information are contained in the ARK ETFs' prospectuses and summary prospectuses, which may be obtained by visiting www.ark-funds.com. The prospectus and summary prospectus should be read carefully before investing.

Past performance is not indicative of future performance.

Specific companies are mentioned in this article as examples only, and are not a recommendation to buy, sell or hold any particular security. However, some of the companies discussed may be held in ARKK, ARKF, and/or ARKW.

Securities in ARKK, ARKF, or ARKW’s portfolio will not match those in any index. The actively managed ETFs are benchmark agnostic and corresponding portfolios may have significant non-correlation to any index.

An investment in an ARK ETF is subject to risks and you can lose money on your investment in an ARK ETF. There can be no assurance that the ARK ETFs will achieve their investment objectives. The ARK ETFs’ portfolios are more volatile than broad market averages. The ARK ETFs also have specific risks, which are described in the ARK ETFs' prospectuses.

Shares of the ARK ETFs may be bought or sold throughout the day at their market price on the exchange on which they are listed. The market price of an ARK ETF's shares may be at, above or below the ARK ETF’s net asset value ("NAV") and will fluctuate with changes in the NAV as well as supply and demand in the market for the shares. The market price of ARK ETF shares may differ significantly from their NAV during periods of market volatility. Shares of the ARK ETFs may only be redeemed directly with the ARK ETFs at NAV by Authorized Participants, in very large creation units. There can be no guarantee that an active trading market for ARK ETF shares will develop or be maintained, or that their listing will continue or remain unchanged. Buying or selling ARK ETF shares on an exchange may require the payment of brokerage commissions and frequent trading may incur brokerage costs that detract significantly from investment returns.

Bitcoin is subject to unique and substantial risks, including significant price volatility and lack of liquidity, and theft. The value of an investment in the Trust could decline significantly and without warning, including to zero. Bitcoin is subject to rapid price swings, including as a result of actions and statements by influencers and the media, changes in the supply of and demand for bitcoin, and other factors. There is no assurance that bitcoin will maintain its value over the long-term.

ARK Investment Management, LLC is the investment adviser to the ARK ETFs.

Foreside Fund Services LLC, distributor.

Not FDIC Insured – No Bank Guarantee – May Lose Value

Blockchain technology is a shared, immutable ledger that facilitates the process of recording transactions and tracking assets in a business network. Distributed ledger technology (DLT) is the technological infrastructure and protocols that allow simultaneous access, validation, and record updating across a networked database.

Stand with Crypto. https://www.standwithcrypto.org/races

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ARK’s statements are not an endorsement of any company or a recommendation to buy, sell or hold any security. ARK and its clients as well as its related persons may (but do not necessarily) have financial interests in securities or issuers that are discussed. Certain of the statements contained may be statements of future expectations and other forward-looking statements that are based on ARK’s current views and assumptions and involve known and unknown risks and uncertainties that could cause actual results, performance, or events to differ materially from those expressed or implied in such statements.