When Cathie Wood launched ARK Invest in 2014, she had a singular goal: to capture the potential of the disruptive innovation that is transforming how the world learns, works, and plays.
The concept is simple. As new technology creates change, there are specific industries, companies, and geographies that will lead the way – and that means an opportunity for those who invest now to profit.
For example, Wood has long been a vocal advocate for Tesla (TSLA), based on its work to make traditional vehicles obsolete in favor of environmentally-friendly alternatives with automated operation.
Through ARK Invest funds, Wood also holds companies that are changing the face of healthcare, like Teladoc Health (TDOC), as well as those that are transforming the entire financial services sector, such as Square.
The ARK Invest family of funds chooses the most promising opportunities in the following areas of disruptive innovation:
- Next-Generation Internet
- Genomic Revolution
- Autonomous Technology and Robotics
- Fintech Innovation
- Space Exploration
- 3D Printing
- Israel Innovation
Most of the ARK funds are theme-specific, but the firm also offers broad access to disruptive innovation through the basic ARK Innovation ETF (ARKK). Other ETFs include:
- ARK Next Generation Internet ETF (ARKW)
- ARK Genomic Revolution ETF (ARKG)
- ARK Autonomous Tech. & Robotics ETF (ARKQ)
- ARK Fintech Innovation ETF (ARKF)
- ARK Space Exploration & Innovation ETF (ARKX)
- The 3D Printing ETF (PRNT)
- ARK Israel Innovative Technology ETF (IZRL)
- ARK Transparency ETF (CTRU)
The past few months notwithstanding, ARK Invest’s original ETFs have generated substantial returns in the years since inception. A critical element of that success has been ARK Invest’s commitment to cryptocurrency – particularly Bitcoin.
ARK Invest researchers and analysts have developed a framework to identify and conduct on-chain analysis of Bitcoin’s fundamentals in a way that more accurately considers the unique nature of this particular asset.
ARK Invest Bitcoin Price: What Are Bitcoin’s Fundamentals?
ARK Invest researchers have established a three-layer system to categorize Bitcoin fundamentals. Each new layer builds on the previous foundation to create a comprehensive picture of Bitcoin’s value.
The first layer includes factors that contribute to the general health of the network. Examples include monetary transparency, integrity, network security, and overall usage.
The second layer focuses on buyer and seller behavior. Specifically, data that illustrate holder positions and the cost bases of those positions at a given point in time. Examples of this type of data include realized capitalization, HODL Waves, and coin days destroyed.
Note that the term HODL waves refers to the percentage of total Bitcoin supply that has moved within a defined period. Coin days destroyed is a method of measuring activity that gives additional weight to Bitcoin that has been held for a lengthy period of time. This can give a different, more accurate depiction of activity than basic transaction volumes, as those transactions may not represent Bitcoin that has been held for a significant period of time.
The third layer includes factors that bring true visibility to the asset valuation. These are on-chain analysis valuation metrics that pinpoint short and midterm price inefficiencies, which ultimately guide investment strategy.
ARK Invest Bitcoin Price: The Metrics
Analysts rely on a series of metrics that, combined, offer insight into Bitcoin’s true value.
In other words, together, they suggest the opportune time to buy or sell Bitcoin and cryptocurrency-related assets in an effort to maximize returns.
The metrics can be categorized under two headings:
- Cost Basis Metrics and
- Profit and Loss metrics.
Cost Basis Metrics for ARK Invest Bitcoin Price
Cost Basis Metrics show the costs at which users transact in Bitcoin over the specified period.
Useful data for on-chain analysis under this heading can be found with the following calculations:
Market Value to Realized Value Ratio (MVRV)
The MVRV ratio can be found by dividing Bitcoin’s market capitalization by its realized capitalization.
It is used to gauge Bitcoin’s long-term market cycles.
Market Value to Thermal Value Ratio (MVTV)
The MVTV ratio can be found by dividing Bitcoin’s market capitalization by its realized capitalization. This shows Bitcoin’s price as it relates to the average cost basis of all market participants.
Note that when the MVRV falls below one, sales are being made at a loss. Historical research by ARK Invest demonstrates that when this scenario occurs, it tends to mark the cyclical bottom.
Short to Long Term Realized Value Ratio (SLRV)
The SLRV calculation can be completed by dividing the one-day HODL wave by the six-month to twelve-month HODL wave. Note that both must be weighted by realized market capitalization for maximum accuracy.
Essentially, the SLRV compares one day’s worth of Bitcoin movement to the number of Bitcoin that moved six to twelve months earlier. In short, it brings visibility to short-term velocity as it relates to medium and long-term velocity.
Historically, an SLRV below 0.04, which indicates short-term velocity is low in comparison to medium or long-term velocity, has signaled a bear market. Conversely, a ratio above 0.04 has historically indicated the start of a bull trend.
Investor capitalization can be calculated by subtracting thermo capitalization from realized capitalization, with thermo capitalization being the weighted sum of mined coins as measured by creation price.
This metric can be used to estimate the fair value of Bitcoin when the market hits bottom by eliminating the outstanding value that is designated to miners from the cost basis.
Profit and Loss Metrics for ARK Invest Bitcoin Price
Profit and loss metrics demonstrate how buyers and sellers take profits and losses during the specified period. Useful data under this heading can be found with the following on-chain metrics:
Realized Profits to Value Ratio (RPV)
The RPV ratio can be calculated by dividing on-chain profits by realized capitalization. This serves to pinpoint the difference between daily profit-taking and the average cost basis. If every Bitcoin moved in a single day, the ratio would be one. That, of course, hasn’t happened, but the figure gives some perspective.
Analysts have determined that historically, the top of the cyclical market occurs when profit-takers have moved two or more percent of their holdings in one day. The same historical research demonstrates that the market is in the process of bottoming when profit-takers have moved just 0.001 percent of their holding in a day.
Short Term Holder (STH) Profit/Loss Ratio (P/L) Ratio
This metric can be calculated by dividing the short-term supply of Bitcoin at a profit by the short-term supply of Bitcoin at a loss.
When the ratio is one, it has been an indication of local tops in bear markets and local bottoms in bull markets.
When the ratio falls below one, users who have moved coins over the previous 155 days have, as a whole, experienced losses. When the ratio rises above one, short-term users, as a whole, see gains.
Finally, when attempting to calculate an accurate valuation of Bitcoin, volatility is critical to understanding the big picture. One method of measuring the relationship between volatility and pricing in a meaningful way is through the calculation of seller exhaustion.
This is determined by multiplying the percentage of Bitcoin’s total circulating supply by volatility in the preceding 30-day period. When volatility is low and losses are high, Bitcoin prices tend to be at their lowest point. Conversely, when volatility is high and losses are low, prices are near or at their peak.
ARK Invest Bitcoin Price: The Bottom Line
The behavior of traditional assets can’t always be predicted, but it is well-understood after many decades of in-depth analysis.
Bitcoin, both the blockchain and the cryptocurrency, are so new that behavior patterns have yet to be fully understood. Many investors find it challenging to analyze Bitcoin, as the go-to methods for traditional assets aren’t applicable to cryptocurrencies.
ARK Invest is working through this challenge to create reliable methods of understanding Bitcoin’s behavior so as to more accurately forecast pricing changes. As their expertise grows, they will be able to further refine this framework for cryptocurrency valuation.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.