Ark Invest founder and CEO Cathie Wood defended bitcoin’s role as an inflation hedge during a Wednesday panel discussion alongside Jack Dorsey and Elon Musk.
The fund manager said bitcoin will serve as a hedge against inflation in certain situations, citing emerging markets as an example.
“There are a lot of emerging markets that are suffering from significant inflation-in other words, the purchasing power of those populations is going down. So they are going to migrate to bitcoin and other ways to preserve purchasing power,” Wood said.
She made the remarks when asked what advice she would give for institutions looking to put bitcoin on their balance sheets. Wood added that being able to sell to people who have migrated to bitcoin in inflationary situations would be “very useful” for corporations.
Earlier in the panel, Wood discussed how bitcoin’s fixed supply of 21 million tokens helps it’s role in preserving purchasing power.
A 33% decline in bitcoin over the past two days hasn’t shaken Cathie Wood’s confidence in the cryptocurrency, as she reiterated Ark Invest’s view that it will trade to $500,000 in the long-term.
“We go through soul searching times like this and scrape the models, and yes, our conviction [on bitcoin] is as high,” Wood said in an interview with Bloomberg on Wednesday.
Ark Invest’s $500,000 bitcoin price target is predicated on the scenario where all institutional asset managers allocate upwards of 5% of their portfolios to the cryptocurrency.
But the rise of bitcoin to more than $60,000 earlier this year also put a spotlight on its high energy consumption, which is partially powered by fossil fuels like coal and natural gas. This led Tesla CEO Elon Musk to halt the EV manufacturer’s acceptance of bitcoin as a form of payment for its products.
But that thinking around bitcoin and its environmental impact is misguided, according to Ark Invest, as it believes the cryptocurrency will accelerate the adoption of solar and other forms of renewable energy.
As to whether bitcoin continues to move much lower from current levels, Wood admitted that it’s possible.
“You never know how low is low when a market gets very emotional,” Wood said, observing that many traders dumped their position after bitcoin traded below its 200-day moving average around the $40,000 level.
But any further decline may represent a solid buying opportunity, Wood said, as she believes bitcoin has entered a capitulation mode.
“We were looking at all the indicators this morning. They are all suggesting that we are in the capitulation phase, which is a really great time to buy, no matter what the asset is. A capitulation phase is buy, it’s on sale,” Wood said.
Wood’s Ark Invest is taking advantage of the recent decline in cryptocurrencies, as the firm has been buying shares of crypto-exchange Coinbase in several of its ETFs amid the decline, according to ARK’s daily trading report.
Jack Dorsey’s payments firm Square also disclosed an additional $170 million investment, bringing its total bitcoin holdings to 5% of its balance sheet. If other US companies follow this trend, the price of bitcoin could rise by between $40,000 and $400,000, according to Wood.
Bitcoin fell 2%, to $49.311, on Thursday, but its price is up 70% year-to-date.
Wood is convinced Tesla’s head-start in autonomous driving remains attractive. Companies that outperformed in the stay-at-home environment during the pandemic, such as Roku and Zoom, are other attractive stocks, owing to their expected growth rate over the next five years, she said.
She said shares in Zoom are “probably undervalued” and that Roku and Amazon “will take the lion’s share of the connected TV market.”
Wood said her fund remains “opportunistic” despite recent decline in the S&P 500 that has been driven by concerns about lofty valuations and chances of higher inflation. “The benchmarks are filling up with value traps” due to growing innovation in fields including artificial intelligence and robotics, she said. “We think the big risk is in the benchmarks, not what we’re doing.”
The Nasdaq Compose closed 2.7% lower on Wednesday as tech stocks plummeted after disappointing labor-market data and a rise in Treasury yields, while the S&P 500 fell 1.3%.
Reuters first reported Wood’s comments from the show.