This article is reprinted with permission from Baihua Blockchain, author: CoinDesk, copyright belongs to the original author.
ARK Invest founder Cathie Wood shared her current views on cryptocurrency and financial markets in an interview with CoinDesk.
Wood analyzed the current economic situation, believing that the Federal Reserve's decision to keep interest rates unchanged reflects a division, predicting that inflation will significantly decline in the next 6-9 months, and the economy will shift from rolling recession to recovery. Technologies such as artificial intelligence and blockchain will drive productivity improvements, leading to benign deflation.
In the cryptocurrency space, she is optimistic about Bitcoin, Ethereum, and Solana, emphasizing Ethereum's potential in institutions and the importance of smart contracts, stating that ARK Invest has established a solid position in Ethereum for the first time. Wood also mentioned ARK Invest's investments in Coinbase, Circle, and Robinhood, highlighting the significance of transparency for investors. She expressed a cautious attitude towards concerns that quantum computing could threaten Bitcoin, believing that the rapid development of artificial intelligence will take precedence over quantum computing.
The following are excerpts from the conversation, compiled by Baihua Blockchain.
Q1: What is your earliest memory of being interested in the market, financial systems, and innovation?
Wood: In college, I didn't know what I wanted to do, so I tried various disciplines like engineering, education, geology, astronomy, and physics. I didn't fall in love with economics until the last semester of my sophomore year when I took an economics class at UCLA. I realized I couldn't take more business courses at UCLA because they only had a graduate business school, so I transferred to USC and met Art Laffer.
He introduced me to Capital Group because he saw my passion for economics. Capital Group is the largest and most prestigious investment firm in Los Angeles. When I walked in, I knew nothing about how the financial world operated. But there, I felt that economics found its place. The market activity was exciting, and I fell in love with the investment world almost immediately because we could get paid for learning; the world was our stage. We needed to figure out how the world works, and when I started working in investment firms at 20, I had no doubt I would be in this industry for life.
Q2: Today, the Federal Reserve decided to keep interest rates unchanged. What is your view on the direction of interest rates?
Wood: Today's Federal Reserve vote had two dissenting votes, which is the first time since 1993 that there have been two dissenting votes. This is symbolically significant because Chairman Powell has always hoped for unanimity. The division may be because Chairman Powell's term ends next May, and perhaps the two dissenting governors want to vie for that position.
It could also be because they see some signs, such as a slowdown in the housing market recovery, with prices in many areas not responding to tariff increases. They may believe that the surprise in the next six months will be a significant decline in inflation. The recent employment report shows some strong and some weak signs. What is concerning is the rising unemployment rate among new college graduates, as many entry-level positions are being replaced by automation like AI.
The economy has entered a rolling recession. The Federal Reserve has raised interest rates 22 times over the past year, and one industry after another is starting to collapse, beginning with housing. The housing market is still 35% lower than its peak by many indicators. Some indicators are declining further. I believe housing inflation data will decrease, with monthly data showing year-on-year declines. While the median existing home sales price may not have fallen, one way to address the housing affordability crisis is that if sellers want to sell their homes, they must lower their prices. If interest rates do not decline, and they do lower prices, the big surprise in the second half of this year will be how low inflation drops.
With increased certainty regarding tariffs, tax policies, government spending, and regulation (or deregulation), the economy will shift from a rolling recession to a stronger recovery than expected. This will become evident in the next six to nine months, and productivity will be one of the biggest surprises. Despite slow economic growth, productivity is still over 2% year-on-year. The technologies we study—robots, energy storage, artificial intelligence, blockchain technology, and multi-omics sequencing in life sciences—will significantly enhance productivity. These innovations are all highly deflationary.
Artificial intelligence is the best example. The cost of training AI is decreasing by 75% each year, and the cost of AI inference, such as the cost of getting answers when we input into ChatGPT or Grok, has dropped by 98% in China. Lower costs will lead to more usage, which is good deflation, not the bad deflation of 2008-2009. For companies at the forefront of new technologies, this is good deflation; for companies being disrupted, it may be bad deflation, and they will be forced to lower prices. The world will become more deflationary than many economists and strategists predict.
Q3: What role does cryptocurrency play in your vision of a stronger future?
Wood: The regulatory environment is very important. We have shifted from a hostile regulatory environment under SEC Chairman Gensler to a very friendly environment now, where legislation guides regulators rather than regulation through enforcement, which forced innovation overseas. The situation is changing positively, especially with the appointment of David Sachs as the czar of cryptocurrency and artificial intelligence. The concept of agent AI is emerging, and AI will do our work and communication for us. Because of agent AI, we need smart contracts; AI agents or assistants will interact with websites like CoinDesk and may need to pay fees. These will be automated smart contracts. Agent AI will drive this process. This is the fusion of artificial intelligence and blockchain technology.
Before this, the financial services sector was also undergoing a revolution, with more financial services companies entering the blockchain world due to the green light from regulators, as costs are much lower. When I explain this to clients, I like to look back at history. In the late 80s and early 90s, when developers were studying the internet, no one thought that financial services or commerce would take place on the internet, so there was no payment layer. Blockchain technology provides us with a payment layer. For the past 30 or 40 years, we needed this payment layer. As financial services and commerce migrate to the internet on a large scale, the traditional world had to mitigate the risks of putting credit cards online, with intermediaries in traditional financial tools extracting 2% to 3.5% fees from each transaction to mitigate risks.
We can reduce this "tax" from 3.5% to 1%. In Nigeria, this number could be 20% or higher. The financial services market is enormous, with assets under management expected to reach $250 trillion in five years. If we can reduce this "tax" by 2% to 2.5%, it will reduce market friction and improve efficiency. This is the cost dynamic, the productivity dynamic surrounding agent AI, smart contracts, and API-to-API transactions, including very small transactions.
Q4: ARK has placed a bet on Tom Lee's BitMine, which is currently one of the largest holders of Ethereum. Can you elaborate on this?
Wood: We have been closely monitoring which companies are signing which agreements as they begin to develop digital asset strategies. Coinbase's second-layer infrastructure chose Ethereum. Robinhood is also building on Ethereum in its evolving second layer. We believe Ethereum will become the protocol for institutions. SOL has performed much better than Ethereum, and many people question this view, but institutions tend to prefer Ethereum, which makes sense. Ethereum is more expensive and slower, but it is more decentralized and therefore more secure. SOL may win in consumer-facing applications.
It is difficult for us to gain good exposure to Ethereum in ETFs. When a 40 Act fund buys another ETF for exposure, it faces tax issues, fee layering issues, and "bad income" tax issues. If the gross profit of an investment exceeds 10% of the fund's annual total profit, the entire fund could be shut down, losing tax benefits and even facing significant fines or actual closure. We cannot take those risks. I am not a tax law expert and cannot explain the specific details. I follow the advice of the trading team, compliance team, and finance team, knowing that there are some things we cannot do.
This is our first time holding a solid position in Ethereum. Of course, there is a premium. Unlike MicroStrategy's Bitcoin reserves, Ethereum reserves offer more utility, with staking being the most important aspect. Currently, Ethereum ETFs cannot stake. We are cornerstone investors in Circle and have been closely watching the explosive growth of stablecoins, most of which occur on Ethereum.
Q5: Has this changed your view on Bitcoin? You predicted that Bitcoin would reach $1.5 million by 2030; has that changed?
Wood: The biggest surprise of the past decade is that in 2014, we founded ARK, and in 2015, we wrote the first white paper on Bitcoin. We believed Bitcoin would play the role that stablecoins currently play in emerging markets. The story of Tether is incredible; I learned from one of Tether's founders, Paolo, that they only realized during the COVID pandemic that Tether would become an important source of dollar exposure for emerging markets. Families in emerging markets would tell their parents, "You don't have to buy dollars on the black market; we can do it online."
That's how it spread. We originally thought Bitcoin would play this role because we didn't know about stablecoins. Recently, we have been surprised by the rapid adoption of stablecoins. If we were to modify the $1.5 million prediction, it might be reduced somewhat from the emerging market portion; you can see how we build this bold prediction in the "Big Ideas 2025" table.
The bigger driver is that Bitcoin is the gateway for institutions entering digital assets, a new asset class, and a substitute for gold as a store of value. We have not changed our views on these two biggest use cases. We can confidently say that optimistic predictions will far exceed $1 million in five years.
Q6: What top protocols or projects are you currently focused on in the cryptocurrency space?
Wood: In the public markets, we play an educational role, guiding clients to cautiously enter this ecosystem. Bitcoin, Ethereum, and we have a heavy position in SOL in our private fund until recently when Ethereum began to outperform SOL. These are the three main focuses. We are also paying attention to the second layer.
We will explain these three major protocols in depth to our client base, using terms that financial analysts and investors can understand, analyzing risk and return, calculating Sharpe ratios, Sortino ratios, etc. We are preparing reports in this area, similar to the Bitcoin Monthly, which may change to a bi-monthly format, alternating coverage of Ethereum, SOL, and other smaller protocols, analyzing on-chain data and assessing the signal properties of these protocols, which have transparency that stocks or bonds do not have.
Q7: Do you have a top three in cryptocurrency stocks?
Wood: In our flagship fund ARKK, fintech fund ARKF, and next-generation internet fund ARKW (which includes cryptocurrency and artificial intelligence), three of the top ten are Coinbase, Circle, and Robinhood. Robinhood is not a pure crypto company, but three years ago, we asked about Robinhood's crypto business during a quarterly call, and their customer base wanted crypto services. Now they are all in; if you look at their analyst day and crypto product launch, they are going all out to win.
Q8: You have built your career on betting on the future and having insights into the future. Many people are still trying to figure out their place in the world. Regarding Bitcoin, some believe that quantum computing may threaten its security. Do you think quantum computing poses a threat to the Bitcoin ecosystem?
Wood: We have thought a lot about this. Our former research director was promoted to chief futurist because these existential issues are very important. Our crypto team, especially David Puel, is well-known in the field of on-chain analysis for Bitcoin, having created multiple indicators. He is very interested in this issue, and chief futurist Brett and David have been evaluating breakthrough progress, which consists of small steps that may become explosive in the future. They believe this will not happen until the late 2030s or 2040s.
The reason is that the progress of artificial intelligence is rapid and exceeds expectations. We have been focusing on artificial intelligence since the company was founded. Many people expect quantum computing to achieve its goals, but artificial intelligence is already able to do so. The costs of artificial intelligence are decreasing rapidly, and the performance of the technology continues to improve; the more computational power invested, the better the performance. This is a more important theme currently, which will delay capital inflow into the quantum field.
Q9: What existential issues keep you awake at night?
Wood: The poor regulatory trajectory over the past four years has made us worried, and we have started to consider looking overseas for more opportunities because blockchain innovation in the U.S. has been completely stifled. Blockchain technology is the next generation of the internet, as the U.S. led the technological revolution of the internet.
If we are excluded from the next generation of revolution, it will be a bigger problem. From the perspective of the U.S. and investment, the rest of the world is more fragmented; Europe has the EU, but there are also various other regulatory and geopolitical risks, which is a significant concern.
We are very outspoken; I mentioned in a broadcast or webinar that Chairman Gensler is a threat to innovation. After saying that, I worried that the SEC would retaliate against me for my comments. We need to stand up because this is crucial for us and U.S. tech companies, despite the risks.
Related: Opinion: Bitcoin (BTC) paves the way; decentralized AI must break free from rented computing power
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