ARK’s Recent Highs Led to Massive Outflows. Are Institutional Investors to Blame?

Cathie Wood’s ARK Invest is back on the outflow grind, and some experts are questioning why.

ARK brought in $3.7 billion across 13 of its US ETFs earlier this month, but recently, its offerings have seen massive outflows. The company’s flagship funds, like ARKK and ARKW, lost billions in assets last week following record inflows. Its bitcoin ETF — the ARK 21Shares Bitcoin ETF (ARKB) —  saw more than $75 million leave on Wednesday despite gaining nearly $200 million in inflows earlier this year, according to the boutique firm Farside Investors. The losses, especially in ARKB, could be due in part to institutional activity as larger investors begin to enter the crypto marketplace.

“Institutions are always moving money around… I think it was just [institutions] positioning for what folks think will be the next leg up,” said financial consultant Tyrone Ross Jr. “ARK is always incredibly active and open about what they’re selling, what they’re buying, so I think it was more bark than bite.”

Cathie’s Ark

The source of ARKB’s woes might be industrywide after a week in which total bitcoin ETF outflows topped $1 billion. But some experts pointed to “heartbeat trades,” a term that describes quick inflows and outflows that help defer long-term capital gains, as a probable culprit. Dave Nadig, director of research at ETF Database, wrote on X that such trades are “a well understood part of ETF tax efficiency,” but that ARK’s recent volatility “is probably a record.” 

The rapid sell-offs could also be institutional investors “shak[ing] out the weak hands,” Ross said. “What all of us crypto hippies wanted as a space, we wanted all the big institutions in,” he said. “When they’re in, this is what they do. They manipulate the market.” The ones really selling are longtime bitcoin investors who have owned it for a decade plus, Ross added, who sell simply to “buy it all up” again. Other recent outflows for ARK’s products include:

• The ARK Innovation ETF (ARKK), which saw four straight days of outflows totaling $5.3 billion last week.
• The ARK Next Generation Internet ETF (ARKW), which saw $715 million in outflows over the same period.

A Drop In the Ocean. Bitcoin swings are unlikely to influence market dynamics going forward, Ross said. “This is what the [crypto] space is right now: It’s $4 trillion. [The outflows are] a pimple on the elephant’s butt, if you look at it in terms of the size of capital markets,” he said. “It’s still susceptible to this kind of stuff.”