"Wooden Sister" reduced position, the first stablecoin stock Circle finally had a big dump.

Author: Li Xiaoyin, Wall Street Journal

"Wood Sister" reduced holdings in Circle, cashing out over 300 million dollars.

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

Analysts generally believe that this is a normal operation for Ark Invest to take profits.

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

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

On the first day of Circle's listing, Ark Invest purchased 4.5 million shares of stock, with a holding value of approximately $373 million. As Circle's stock price surged, Ark Invest likely recouped a significant portion of its initial investment cost through this reduction in holdings.

On Tuesday, Circle's stock price fell by 8.1%, briefly interrupting its upward trend.

Ark Invest Reduces Holdings After Significant Profits

According to media calculations, Ark Investment Management's three ETFs collectively reduced their holdings by about 1.5 million shares of Circle stock.

Among them, the flagship product ARK Innovation ETF (ARKK) sold 1.2 million shares, with assets reaching $6.5 billion. The ARK Next Generation Internet ETF (ARKW) and ARK Fintech Innovation ETF (ARKF) also followed suit with reductions.

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

Bloomberg Intelligence ETF analyst Athanasios Psarofagis stated:

"The 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:

"Taking profits is a natural part of the Ark strategy. The more important question is if they completely liquidate, this could trigger the risk of a repeat of NVIDIA."

In 2023, Wood liquidated her holdings in NVIDIA when the stock price soared, a move that attracted market attention.

The Future of Stablecoin Payments is Questioned, High Valuations Raise Concerns

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

However, analysts have differing opinions on Circle's continued upward potential. Jefferies analyst Trevor Williams stated in a report on Monday:

"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 can lead to a poor consumer experience and a lack of new discounts or incentives."

He added that the appeal of stablecoins for American consumers may be limited to serving as a gateway for entering and exiting crypto transactions.

Michael Lebowitz, the portfolio manager at RIA Advisors, also stated that stablecoins are more like providing services similar to money market funds for cryptocurrency traders, rather than being true alternatives like Visa or Mastercard.

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

At the same time, the significant rise in Circle's stock price has also boosted its valuation level, with a price-to-earnings ratio nearing 180 times, far exceeding 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 improves 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 its peers."

In addition, data shows that Circle's free-floating shares account for only 25%, while the average ratio for S&P 500 index components is 95%. A low trading volume means that stock prices are prone to significant fluctuations, and once market sentiment reverses, it may exert downward pressure on stock prices.