#343: Bankruptcy Filings Reveal Gross Mismanagement At FTX, & More
1. Bankruptcy Filings Reveal Gross Mismanagement At FTX

Initial filings reveal damning evidence that now-bankrupt crypto exchange FTX misappropriated both investor and customer funds. John Ray, FTX’s bankruptcy expert who oversaw the Enron case, described the “unprecedented” situation. Revelations include the absence of trustworthy financial information, use of corporate funds to purchase personal property, and large personal loans including $1 billion to CEO Sam Bankman-Fried (SBF) and $543 million to Director of Engineering Nishad Singh.
In the wake of SBF’s bizarre and somewhat self-aggrandizing tweets, FTX’s new management released a statement that the former CEO was no longer acting on behalf of the company. More damning, a series of SBF’s Twitter DM’s with a Vox reporter exposed his true character: prior political donations and advocacy in Washington were “just PR”; regulators “don’t protect customers at all”; his biggest mistake was filing for bankruptcy, and “everything would be ~70% fixed” if he hadn’t. SBF also seemed to suggest that winning by any means is better than being clean and losing.
In response to the FTX bankruptcy, contagion spread, forcing institutional lender Genesis to pause customer withdrawals and curtail its retail crypto lending product. We expect other counterparties to surface as more details surrounding FTX and Alameda’s dealings emerge.
That said, our conviction in decentralized and transparent public blockchains is as strong as ever. In this case and others, decentralization and transparency are paramount as antidotes to the gross mismanagement associated with centralized intermediaries, not to mention fraudulent centralized intermediaries.
2. Multiomics Analysis Could Detect Cancer In Its Early Stages
Cancer is easier to treat when diagnosed early. Late-stage or metastatic cancers account for more than 55% of deaths over a five-year period but only 17% of new diagnoses. Compared to 24% for metastatic cancers, the five-year survival rate for early-stage or localized cancers is 89%.
Screening is shifting diagnoses for many cancers to earlier stages, which should reduce cancer mortality rates. Liquid biopsies, or blood-based screening tests that leverage novel biological hardware and software, could become powerful screening tools.
The declining costs of DNA sequencing have catapulted liquid biopsy into clinical practice, particularly for more advanced cancers. Early-stage cancers account for less than 0.01% of DNA in the bloodstream and are obfuscated by large amounts of healthy DNA. As a result, labs have difficulty distinguishing between healthy and cancerous DNA––especially because DNA sequencers can make mistakes. As illustrated in the chart below, many forms of early-stage cancers are impossible to detect, even with accurate sequencing.

Note: Specificity = True Negative Rate; Sequencing error is exponential (e.g., 1E-02 = 99% per-base accuracy, 1E-03 = 99.9% per-base accuracy, etc.). Source: ARK Investment Management LLC, 2022; Avanzini et al. 2020 (https://www.science.org/doi/10.1126/sciadv.abc4308).
To circumvent this problem, cutting-edge labs are deploying “multiomics” analysis––combining information from multiple “omes” using machine learning techniques that can analyze genomics (DNA), transcriptomes (RNA), proteins (proteomics), and methylation (epigenomics). As costs continue to decline, labs should be able to create tests that scale and detect many early-stage cancers.
3. Cruise Expands Its Autonomous Ride-Hail Service In San Francisco

Last week, Cruise expanded its autonomous ride-hail service to daytime hours in most of San Francisco. ARK’s Cathie Wood and Tasha Keeney tested the expanded service during its nighttime operation, enjoying smooth rides with only one slight sudden braking event near a construction zone. In our view, a passenger in the backseat would not have noticed the difference between the computer and a human driver.
The key question now is how fast Cruise will be able to scale relative to Tesla? Currently, the company has 80 cars in San Francisco, with plans to scale to a fleet of one million vehicles by 2030. Meanwhile, Tesla has millions of autonomous-capable customer cars on the road that could scale to tens of millions by 2030. Cruise currently uses modified Chevrolet Bolts but plans to scale its purpose-built Origin autonomous vehicles. GM could allocate more Bolts to Cruise but, as of now, it plans to scale Bolt production to only 70,000 units a year in 2023.
In our view, autonomous ride-hail will be a winner-takes-most market. The first company to scale its autonomous ride-hail service will have a significant leg up on the competition.
4. Sales Of Gas-Powered Vehicles Could Collapse 85% In The Next Five Years

ARK’s evolving electric vehicle (EV) sales forecast is pointing the way to an all-electric auto industry in the next five years. The navy line in the chart below illustrates that, as the average price of an EV has declined, EVs have gained share of all cars––both internal combustion and electric [1] as depicted in the purple line. Our conclusion is that all new vehicle sales will be electric if prices drop to ~$14,500 on average.

While production capacity may not hit 80 million units, EVs still could account for ~90% share of the market by 2027.
How?
By 2027, consumers probably will conclude that buying a used car or waiting to buy a new EV will make more economic sense than buying a new ICE vehicle. As a result, ARK’s research suggests that new vehicle sales globally will drop as internal combustion engine vehicle sales collapse from ~70 million units this year to roughly 10 million units, as shown below.

Such a drop in ICE vehicle sales could set in motion a death spiral for incumbent automakers. As EV prices decline, consumers could delay their EV purchases or purchase used vehicles at the expense of new ICE vehicle sales. As a result, the factory capacity utilization of ICE vehicles could drop, forcing an increase in depreciation expenses and, in a vicious cycle, boosting ICE vehicle prices further, at the expense of their competitiveness to EVs.
[1] ARK adjusted prices to reflect global numbers.