"Wood Sister" reduced her holdings, and the first stablecoin stock Circle finally fell sharply

Author: Li Xiaoyin, Wall Street News

"Cathie Wood" reduces her holdings in Circle and cashes out more than $300 million.

According to media reports on Wednesday, ARK Investment Management, owned by well-known investor "Cathie Wood", sold about 1.5 million shares of Circle in the past four trading days, worth about $333 million.

Analysts generally believe that this is a normal operation of profit-taking by Ark Investment.

Wall Street News previously mentioned that ARK has long been known for its firm bets on cryptocurrencies and disruptive technologies. As one of the most active institutional supporters of Bitcoin, Wood predicted earlier this year that the price of Bitcoin could reach $1.5 million by 2030.

As the issuer of the second largest stablecoin USDC, since its listing on June 5, Circle's stock price has soared from the issue price of $31 to a maximum of $263.45, an increase of nearly 750%. The company's market value has reached $50 billion, ranking among heavyweight players such as Coinbase and Robinhood.

On the first day of Circle's listing, Ark Investments bought 4.5 million shares of stock, with a holding value of approximately $373 million. With the sharp rise in Circle's stock price, Ark Investments is likely to have recovered most of its initial investment costs through this reduction.

On Tuesday, Circle's stock price fell 8.1%, briefly interrupting its rally.

Ark Investments Reduced Holdings After Huge Profits

According to media calculations, the three ETFs managed by Ark Investments reduced their holdings of about 1.5 million Circle shares in total.

Among them, the flagship product ARK Innovation ETF (ARKK) sold 1.2 million shares, with an asset size of US$6.5 billion. ARK Next Generation Internet ETF (ARKW) and ARK Fintech Innovation ETF (ARKF) also followed suit.

However, ARK is still the eighth largest shareholder of Circle.

Bloomberg Intelligence ETF analyst Athanasios Psarofagis said:

"Ark doubled its investment in less than a month, and it is not uncommon for them to sell when the stock price rises."

Strategas Research senior ETF analyst Todd Sohn pointed out:

"Profit-taking is a natural part of Ark's strategy. The more important issue is that if they completely liquidate, it will trigger the risk of a repeat of Nvidia."

In 2023, Wood liquidated the stock when Nvidia's stock price soared, which attracted market attention.

The prospects of stablecoin payments are questioned, and high valuations have caused concerns

Circle's stock price has continued to rise since its listing, closing at a record high of $263.45 on Monday. This makes Circle the most high-profile cryptocurrency-related company to go public since Coinbase's direct listing in 2021.

However, analysts are divided on Circle's continued upside.

"We are highly skeptical that stablecoins can become a relevant payment method in the United States. The current card-based payment system is convenient, secure and rewarding, while stablecoins may lead to a poor consumer experience and lack new discount or reward mechanisms," Jefferies analyst Trevor Williams said in a report on Monday.

He added that the appeal of stablecoins to U.S. consumers may be limited to being an entry and exit channel for crypto transactions.

Michael Lebowitz, portfolio manager at RIA Advisors, also said that stablecoins are more like providing services similar to money market funds for cryptocurrency buyers and sellers, rather than real alternatives such as Visa or Mastercard.

He believes that the impact of stablecoins on traditional payment giants may be overestimated.

At the same time, the sharp rise in Circle's stock price has also pushed up its valuation level, with its price-to-earnings ratio approaching 180 times, much higher than the forward price-to-earnings ratio of about 22 times for the S&P 500 index.

Miguel Armaza, founding partner of Gilgamesh Ventures, believes that Circle's high price-to-earnings ratio can only be sustained if the company significantly increases its net profit margin and profitability:

"Any execution obstacles, unexpected regulatory setbacks or macroeconomic headwinds could easily compress the company's valuation multiples, bringing Circle's valuation closer to that of its peers."

In addition, data shows that Circle's free float accounts for only 25%, while the average proportion of S&P 500 index components is 95%. Low circulation means that stock prices are prone to violent fluctuations, and once market sentiment reverses, it may put downward pressure on stock prices.