US Election Results Could Signal a Flourishing Era for Digital Assets Like Bitcoin

Digital Assets Have Transformative Potential

Digital assets, including cryptocurrencies such as Bitcoin and Ethereum, as well as blockchain-based technologies, have transformed financial markets in recent years by providing new, decentralized forms of value transfer and financial services that operate outside traditional banking systems. ARK Invest, a leading investment firm focused on disruptive innovation, views digital assets as foundational to the future of financial technology. By decentralising finance, empowering individuals, and creating secure networks, digital assets have the potential to redefine the global financial landscape and fundamentally alter how individuals and institutions access and manage capital.

We believe that public blockchain infrastructure is catalysing three revolutions:

Source: ARK Invest, Big Ideas, 2023. [1] Non-fungible token (NFT), a unique, programmable blockchain-based digital object that proves ownership of digital assets. Sources: ARK Investment Management LLC, 2023. Glassnode, data as of 01/20/23, figures not entity-adjusted. Forecasts are inherently limited and cannot be relied upon. For informational purposes only and should not be considered investment advice or a recommendation to buy, sell, or hold any particular security or cryptocurrency. Pas performance is not indicative of future results.

Tailwinds are Strengthening Due to a Regulatory Regime Shift

The recent election of Donald Trump as the first openly pro-cryptocurrency President of the United States has heightened interest and optimism among digital asset advocates, with many speculating that the new administration may bring favourable regulatory changes. Trump joins 266 pro-cryptocurrency representatives in the House and 18 in the Senate, signalling a potential shift toward pro-digital asset policies in Congress. By January, it is expected that pro-cryptocurrency lawmakers will outnumber their anti-crypto counterparts across both legislative chambers, setting the stage for a potentially more favourable regulatory environment.

With Bitcoin recently surging to new highs, expectations are growing that the incoming Trump Administration will pursue clearer and more supportive digital asset regulations. Key areas of potential impact include the U.S. Securities and Exchange Commission (SEC), where a more crypto-friendly stance could replace Chair Gensler’s “regulation by enforcement” approach. Such a shift could 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 of which have already passed in the House, 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.

On a forward-looking basis, ARK projects the industry to expand from its current market size of $3.3 trillion by 2030, representing a Compound Annual Growth Rate (CAGR) of 50%. This exponential growth underscores the transformative potential of digital assets to reshape global finance and drive the emergence of a more inclusive, efficient, and innovative financial ecosystem.

Adding Portfolio Exposure to Digital Assets through Publicly Traded Companies

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. One prominent example is Coinbase (Nasdaq: COIN), the largest U.S.-based cryptocurrency exchange, which has gained a reputation for regulatory compliance as a publicly listed company on a major U.S. stock exchange. Coinbase provides investors with a structured and compliant way to access the growth of digital assets without directly holding individual cryptocurrencies. Following Trump’s election, both Coinbase (COIN) and the ARK Innovation ETF (ARKK) rallied, signalling market optimism for regulatory clarity that could positively impact digital assets.

Coinbase’s strengths lie in its diversified ecosystem, which spans secure cryptocurrency storage, institutional trading, and an expanding 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 participate in digital asset growth. Its revenue model benefits from increased trading volume and a broader adoption of digital assets, making it a key vehicle for investors seeking compliant exposure to the cryptocurrency space.

Other public equities such as Block (formerly Square) (NYSE: SQ) and Robinhood (Nasdaq: HOOD), provide additional exposure to digital wallets and emerging digital payment systems. Block’s Cash App, for instance, integrates Bitcoin, allowing users to buy, sell, and transact in cryptocurrency, while Robinhood appeals to a younger demographic through its cryptocurrency trading feature. Although these companies may not be as directly tied to cryptocurrency as Coinbase, they are foundational to the broader digital finance ecosystem, which supports the adoption and integration of digital assets into mainstream financial services.

As More Firms Begin to Pile into the Crypto Bandwagon, We Remind Clients that History – and Education – Matters

An education and understanding on cryptocurrencies are important ahead of any allocation. At ARK Invest, we have been researching blockchain technology and digital assets for a decade and providing the market with our viewpoints and insights. ARK Invest, ARK Europe’s parent company, was the first public 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: ARK Invest, 2024. For informational purposes only and should not be considered investment advice or a recommendation to buy, sell, or hold any particular security or cryptocurrency. Pas performance is not indicative of future results. ARK refers to ARK Invest, the parent company of ARK Europe. https://www.ark-funds.com/articles/etf/understanding-your-digital-asset-exposure

The ARK Innovation UCITS ETF: Access to the Digital Asset Wave and Beyond

The ARK Innovation UCITS ETF (ARKK) offers a unique approach to capturing the momentum in digital assets through its holdings in companies like Coinbase, Block, and Robinhood. By investing in ARKK, investors gain exposure not only to the growth of digital assets but also to key players in the broader digital finance ecosystem. As mentioned above, Coinbase provides a regulatory-compliant avenue for engaging with cryptocurrency trends, while Block and Robinhood expand ARKK’s exposure to digital wallet and payment innovations.

Holding data as of November 26, 2024. For a list of current holdings please visit: https://europe.ark-funds.com/funds/active-etfs/innovation/

Cryptocurrency exposure, however, is just one element of ARKK’s multi-faceted strategy. ARK Invest’s diversified portfolio spans five key innovation platforms that they believe have transformative potential: DNA sequencing, energy storage, robotics, artificial intelligence, and blockchain technology. Outside of digital assets, ARKK includes leading companies in autonomous technology, such as Tesla (Nasdaq: TSLA), which stands to benefit from the likelihood of more rapid regulatory approval for full self-driving capabilities. This diversified approach positions ARKK to capture value across a wide range of high-growth sectors, allowing investors to benefit from emerging technologies beyond digital assets alone.

For investors seeking to ride the digital asset wave while accessing a broader spectrum of disruptive innovation, the ARK Innovation UCITS ETF presents a compelling opportunity. As markets shift into a “risk-on” mode, the ARK Innovation UCITS ETF enables a balanced yet targeted investment in technologies that have the potential to redefine industries and create significant long-term value across multiple sectors.