Innovation-focused investment manager ARK Invest has released its annual Big Ideas report for 2021, highlighting the best and worst investment opportunities out there.
When it comes to the worst ideas, ARK said household name NASDAQ listed Intel is failing to keep up with the times. The company's competitors are a full generation ahead of Intel in server chip production, mass producing 5nm processors while Intel has still not shipped a 10nm server chip.
Intel's failure to keep up with the times could see them miss out on what ARK considers to be a strong thematic for 2021 - the re-invention of the data centre thanks to cheaper, faster processors.
ARK believes that Intel is likely to be displaced entirely by its competitors in the data centre cloud market. For a company that has been around since 1968 and reported US $71.9 billion in revenue in 2019, ARK's prediction could be bad news for investors.
Meanwhile, in financial services ARK predicts that traditional banks are facing sizeable risks from digital wallets like Alipay and Venmo and digital lenders like Klarna.
Venmo, which is owned by PayPal, amassed roughly 60 million active users in the last 10 years - a milestone that took J.P. Morgan more than 30 years and five acquisitions to reach. In the US, Venmo now has more active users than J.P. Morgan Chase has deposit account holders, according to ARK.
And, as Bitcoin's price hit an all-time high and began to fall, ARK said its research indicates that the fundamentals remain healthy and cryptocurrencies remain an attractive investment opportunity.
"Based on search volumes compared to 2017, Bitcoin's price increase seems to be driven less by hype. With bitcoin appearing to gain more trust, some companies are considering it as cash on their balance sheets," ARK said.
If more companies were to allocate cash to Bitcoin that could have a dramatic impact on its value. ARK estimated that if all S&P 500 companies allocated 1% of their cash to Bitcoin its price would increase by $40,000.
ARK pointed to Square and Microstrategy as two companies with balance sheet investments in Bitcoin, something it predicts could become commonplace.
"We believe Bitcoin offers one of the most compelling risk-reward profiles among assets," ARK said.
"As our analysis suggests, it could scale from roughly $500 billion to $1-5 trillion in network capitalisation during the next five to 10 years."
ARK also predicts institutional investors will jump on the cryptocurrency bandwagon.
For example, US insurance giant MassMutual invested $100 million in Bitcoin in 2020. Billionaire investor Stanley Druckenmiller and macro hedge fund investor Paul Tudor Jones also disclosed investments in Bitcoin last year. Fidelity Digital also announced it would hold Bitcoin as collateral for cash loans.
Bitcoin has earned a strategic asset allocation in well-diversified institutional portfolios, ARK argued, as during the last decade it is the only major asset with consistently low correlations to traditional asset classes. It has less of a correlation to real estate, gold or emerging market currencies than the S&P 500.
"Based on daily returns across asset classes during the past 10 years, our analysis suggests that allocations to bitcoin should range from 2.55% when minimising volatility to 6.55% when maximising returns," ARK said.
