Cathie Wood, founder of ARK Invest, shared her current views on financial markets including crypto in an interview with CoinDesk.
Cathie Wood analyzes the current economic situation and believes that the Fed's decision to keep interest rates unchanged reflects a divergence. She predicts that inflation will significantly decrease in the next 6-9 months, and the economy will shift from rolling recession to recovery, with technologies like artificial intelligence and blockchain driving productivity gains, leading to beneficial deflation.
In the crypto space, she is optimistic about Bitcoin, Ethereum, and Solana, emphasizing Ethereum's potential among institutions and the importance of smart contracts, stating that ARK Invest has established its first solid position in Ethereum. Cathie Wood also mentioned ARK Invest's investments in Coinbase, Circle, and Robinhood, stressing the significance of transparency for investors. She is cautiously concerned about the quantum computing threat to Bitcoin, believing that the rapid development of artificial intelligence will take precedence over quantum computing.
The following is an excerpt from the conversation, compiled by Blockchain in Plain Language.
Q1: What is your earliest memory of being interested in the market, financial systems, and innovation?
Cathie Wood: In college, I didn't know what I wanted to do, so I tried various subjects 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 course at UCLA, realizing 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 had found its place. The market activity was exciting, and I fell in love with the investment world almost as soon as I stepped in, 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 at an investment firm 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?
Cathie Wood: Today's Fed vote had two dissenting votes, marking the first time since 1993 that there were two dissenting votes. This is symbolically significant because Chair Powell has always sought unanimity. The divergence may be due to Chair Powell's term ending in May next year, and maybe the two dissenting governors want to vie for that position.
It may also be because they see some signs, such as a slowdown in the housing market recovery, with prices in many areas not responding to increased tariffs. They may believe that the surprise in the next six months will be a significant drop 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 such as AI.
The economy has entered a rolling recession. The Fed has raised interest rates 22 times over the past year, and industry after industry 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-over-year declines. While the median existing home sale price may not have fallen, one way to address the housing affordability crisis is for sellers to lower prices if they want to sell. If rates do not fall, and they do lower prices, the big surprise in the second half of this year will be how low inflation drops.
Due to increased certainty regarding tariffs, tax policies, government spending, and regulation (or deregulation), the economy will shift from a rolling recession to a recovery that is stronger than expected. This will become evident in the next six to nine months, with productivity being one of the biggest surprises. Despite slow economic growth, productivity year-over-year still exceeds 2%. The technologies we study—robotics, energy storage, artificial intelligence, blockchain technology, and multi-omics sequencing in life sciences—will significantly enhance productivity. These innovations are highly deflationary.
Artificial intelligence is the best example. The cost of training AI drops by 75% each year, while the cost of AI inference, such as the cost of getting answers when we input into ChatGPT or Grok, has fallen by 98% in China. Lower costs 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 that are being disrupted, it may be bad deflation, as they will also 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 stronger vision for the future?
Cathie Wood: The regulatory environment is very important. We have shifted from a hostile regulatory environment under SEC Chair Gensler to a very friendly environment now, where legislation guides regulators rather than regulating through enforcement, which forced innovation to flow overseas. The situation is changing positively, especially with the appointment of David Sachs as the czar for cryptocurrencies and AI. The concept of agent AI is emerging, with AI completing work and communication for us. Due to agent AI, we need smart contracts, and AI agents or assistants will interact with websites like CoinDesk, possibly requiring payment. These will be automated smart contracts. Agent AI will drive this process. This is the integration of artificial intelligence and blockchain technology.
Before this, the financial services sector was also undergoing a revolution, as more financial services companies entered the blockchain world due to the green light from regulators, as it is much cheaper. When I explain 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 occur online, so there was no payment layer. Blockchain technology provides us with a payment layer. Over the past 30 or 40 years, we needed this payment layer. As financial services and commerce massively migrated to the internet, the traditional world had to mitigate the risks of placing credit cards online, with intermediaries from traditional financial tools taking 2% to 3.5% from every transaction to mitigate risks.
We can reduce this "tax" from 3.5% to 1%. In Nigeria, this figure could be 20% or higher. The financial services market is huge, and the assets under management will 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 around agent AI, smart contracts, API to API transactions, including very small transactions.
Q4: ARK has placed a bet on Tom Lee's BitMine and is currently one of the largest holders of Ethereum. Can you elaborate?
Cathie Wood: We have been closely monitoring which companies have signed which agreements as they begin developing digital asset strategies. Coinbase's layer two solution has chosen Ethereum. Robinhood is also building on Ethereum for its evolving layer two. We believe Ethereum will become the protocol of choice for institutions. SOL has performed much better than Ethereum, and many question this view, but it makes sense for institutions to prefer Ethereum. While Ethereum is more expensive and slower, it is also more decentralized, thus more secure. SOL may win out in consumer-facing applications.
We find it difficult to obtain good exposure to Ethereum in ETFs. When a fund under the 40 Act buys another ETF for exposure, it faces tax issues, fee layering issues, and tax issues related to "bad income." If the gross profit of an investment exceeds 10% of the fund's total annual profit, the entire fund could be shut down, losing tax advantages and even facing significant fines or actual shutdown. We cannot take these risks. I am not a tax law expert and cannot explain specific details in detail. I follow the advice of the trading, compliance, and finance teams, knowing that there are some things we cannot do.
This is our first solid holding of 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 are happening on Ethereum.
Q5: Does this change your view on Bitcoin? You predict that Bitcoin will reach $1.5 million by 2030. Has that changed?
Cathie Wood: The biggest surprise of the past decade is that we founded ARK in 2014 and wrote our first white paper on Bitcoin in 2015. We believe Bitcoin will play the role that stablecoins currently play in emerging markets. The story of Tether is incredible; I learned from Paolo, one of the founders of Tether, that they only realized during the COVID pandemic that Tether would become an important source of dollar exposure for households in emerging markets, where children would tell their parents not to buy dollars on the black market, as we could do it online.
This is how it spreads; we originally thought Bitcoin would play this role because we did not know about stablecoins. Recently, we have been surprised by the rapid uptake of stablecoins. If we were to modify the $1.5 million prediction, it might come down a bit from the emerging market portion, which you can see in the table for the (2025 Big Ideas) on how we constructed this bold prediction.
The bigger driver is that Bitcoin is the gateway for institutions into digital assets; it is 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 exceed one million dollars in five years.
Q6: What are the top protocols or projects you are currently focused on in the crypto space?
Cathie Wood: We play an educational role in the public market, guiding clients to cautiously enter this ecosystem. Bitcoin, Ethereum, and we have a heavy position in SOL in our private equity fund until recently when Ethereum began to outperform SOL. These are the three main focuses. We are also looking at layer two.
We will provide a deep dive for our client base on these three protocols, using terms that financial analysts and investors can understand, analyzing risk-return, and calculating Sharpe ratios, Sortino ratios, etc. We are preparing reports in this area, similar to the Bitcoin (Bitcoin Monthly), which may change to a bimonthly format, alternating coverage of Ethereum, SOL, and other smaller protocols, analyzing on-chain data and assessing the signal properties of these protocols, which are transparently absent in stocks or bonds.
Q7: Do you have a top three in crypto stocks?
Cathie Wood: In flagship fund ARKK, fintech fund ARKF, and next-generation internet fund ARKW (which includes cryptocurrencies 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 on a quarterly call, and their customer base wanted crypto services. Now they are all in, and if you look at their analyst day and crypto product launch, they are going all out to win.
Q8: You have built a career based on betting on the future and your ability to foresee it. Many 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?
Cathie Wood: We think a lot about this; our former research director was promoted to chief futurist because these existential questions are very important. Our crypto team, especially David Puel, is well-known in the field of Bitcoin chain analysis, and he has created multiple metrics. He is very interested in this issue; chief futurist Brett and David have been evaluating breakthrough progress, which are small steps that may become explosive in the future; they believe this will not happen until the late 2030s or 2040s.
The reason is the rapid progress of artificial intelligence, which has exceeded expectations. We have been focused on AI since the company's inception. Many expect quantum computing to achieve its goals, but AI has already done so. The cost of AI is decreasing rapidly, and technology performance continues to improve; the more computing power invested, the better the performance. This is currently a more important theme that will delay capital inflow into quantum fields.
Q9: What existential issues keep you up at night?
Cathie Wood: The poor regulatory trajectory over the past four years has raised concerns for us, and we have started to look overseas for more opportunities, as blockchain innovation in the US has been completely stifled. Blockchain technology is the next generation of the internet, as the internet was led by the US in the technological revolution.
If we are excluded from the next generation of revolutions, it will be a bigger problem. From an American and investment perspective, 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 major concern.
We are very outspoken; I said in a broadcast or webinar that Chair 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 US tech companies, despite the risks.
