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Please enjoy ARK's weekly newsletter curated by our thematic analysts and designed to keep you engaged with disruptive innovation. Have a wonderful day!
 
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AlphaFold AI Aids in the Analysis of Protein Structures

Follow Simon on Twitter @ARKInvest

 

The cost decline of DNA sequencing has democratized access to the human genome and, in the process, generated tremendous amounts of data. Contending with large sets of biologically complex data has motivated researchers to adopt novel computational techniques. DeepMind Technologies, owned by Alphabet (GOOG), has constructed a machine learning algorithm called AlphaFold to quantify the 3D-structure of proteins using primary DNA sequences. While in its infancy, this technology could improve both drug discovery and molecular diagnostics significantly.

 

Our genes provide instructions to build proteins, molecules which play critical roles in most biological processes. Gene mutations can alter the structure and function of proteins in harmful ways. Misfolded proteins can cause genetic disorders like Alzheimer’s and cystic fibrosis.

 

Because legacy methods to assess proteins rely on costly, upstream chemical workflows and imaging equipment, some researchers are defaulting to digital simulations and analyses. Complex proteins contain thousands of smaller subunits, often making it impossible to identify their 3D-structures. Bonds in the protein backbone, as shown below, introduce structural complexity that traditional computing cannot handle.

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AlphaFold aims to overcome this challenge by leveraging neural networks that incorporate thermodynamic and kinetic laws associated with polymer chemistry. Given a primary DNA sequence, the neural network estimates distances between bonds and the angles among amino acids. Then, AlphaFold uses machine learning iteratively to reduce the error between generated and actual protein structures. While still in early stages, when combined with the rapid increase in genetic data, AlphaFold should refine the algorithms in computational biology, clarify the genes associated with disease, and lead to the creation of new diagnostics and therapeutics.

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The Mining Death Spiral Is the Latest FUD Around Bitcoin

Follow Yassine on Twitter @yassineARK

 

The bear market in bitcoin is breeding fear, uncertainty, and doubt (FUD).  Increasingly, arguments against bitcoin that had been debunked are resurfacing.

 

The latest? Bitcoin mining has entered a death spiral. As Matt Odell first pointed out in June of 2018, "the lowest hanging fruit for the next batch of unsubstantiated FUD will be the ‘mining death spiral’ articles that appear every bear market and halving." The Block's technical analyst, Arjun Balaji, lays the argument for a miner-induced death spiral: "Bitcoin prices drop materially, eventually marginally profitable miners shut off, ad infinitum, until all the miners are gone and no one mines bitcoin."

 

The inconsistency of this argument lies in Bitcoin's proof of work difficulty adjustment. Proof of work difficulty is a measure of the difficulty to hash a block. Difficulty is set so that, on average, the hash of a block takes roughly 10 minutes. The biggest determinant of the proof of work difficulty is the hash rate of the Bitcoin network which, in turn, is set by the price of bitcoin. Every 2016 blocks, the Bitcoin network reassesses its global hash rate to determine whether the difficulty is consistent with the network's ability to find blocks every 10 minutes.

 

Earlier this week, Bitcoin's mining difficulty dropped 15%, exceeded only by the 18% drop in November 2011. Causing the sharp adjustment downward in difficulty was a drop in the hash rate as miners left the market in response to lower prices and profits.

 

Ironically, mining profitability provides the case against a mining death spiral. Miners still in the network after the proof of work difficulty adjustment should garner a larger percentage of the hash rate, increasing their probability of finding and profiting from the next block. We believe higher rewards per block should compensate for the drop in price, rendering the mining death spiral improbable.

 

Even during a significant drop in the hash rate prior to a difficulty adjustment, game theory suggests that a death spiral would be unlikely as some miners probably would mine at a loss up in anticipation the downward adjustment in difficulty. Their contractual obligations, particularly those associated with equipment, should incentivize miners to mine at a loss until the next difficulty adjustment.

 

 

The Arrest of Huawei’s CFO Portends a Cold War Over 5G

Follow James on Twitter @jwangARK

 

The dramatic arrest of Huawei’s Chief Financial Officer could have ramifications for the emerging 5G market. In recent years, Huawei has surpassed Nokia and Ericsson as the world’s top supplier of telecommunications equipment. Yet, as trade and national security tensions have simmered and flared between the US and China, Huawei equipment has been unable to penetrate US telecom facilities. Security experts fear that Huawei’s close ties to the Chinese government could compromise US networks.

 

As a result, this summer Congress passed the 2019 National Defense Authorization Act which bans the use of certain Chinese telco equipment in US government agencies. As the global wireless industry begins to transition to the long-awaited 5G technology, Huawei has been aiming to grow its market share and become the global leader. Because western leaders do not want to cede the future of wireless to a Chinese firm, the strong enforcement action against Huawei’s CFO is not surprising.

 

If Huawei has been evading sanctions and selling telecom equipment to Iran, it could face the same measures that nearly killed ZTE. As a result, Nokia and Ericsson, after a long and painful competitive decline, finally could have the wind at their backs in the 5G wireless technology race.

 

 

Japan Aims for a Cashless Economy and Promotes Digital Payments 

Follow Bhavana on Twitter @bhavanaARK

 

According to ARK’s research, cash accounts for roughly 80%, or 1.4 trillion global transactions, annually, with its share in Japan near the top of the range.  In Japan, cash is both a means of payment and an asset, thanks to years of a zero interest policy, deposit insurance levels limited to 10 million Yen, and high sales taxes. According to the Bank of Japan, ~50% of the assets held by households are currency and deposits.

 

Cash accounts for 20% of GDP in Japan, roughly twice the drag on its economy as that in the US and China, as shown below.  To address this issue, the Japanese government has formed a “cashless promotion council” to achieve a digital payment rate of 40%, including several initiatives: 1) the standardization of QR code settlements, 2) consumer education on the benefits of cashlessness, and 3) digital payment data collection. 

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Companies like Softbank and Line Corporation are moving aggressively to capitalize on these initiatives. Softbank’s digital payment offering called PayPay, run by India’s Paytm, has allocated 10 billion Yen to offer 20% cash back on purchases. Similarly, Line Corporation in partnership with WeChat Pay is offering 3% cash back to attract new customers and serve Chinese tourists in Japan. These digital wallets will benefit not only from transaction fees but also advertising revenues and the potential to become “personalized bank branches”.

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Waymo One’s “Commercial Launch” Proves Disappointing

Follow Tasha on Twitter @TashaARK

 

This week, Waymo launched its long awaited commercial autonomous driving service, Waymo One, in Phoenix.  Diminished relative to its original vision, Waymo One still includes safety drivers in the front seat, adheres stringently to traffic laws like speed limits, and is limited to Waymo’s early rider program, a group of 400 pre-approved participants who signed non-disclosure agreements in 2017.

 

Waymo One’s pricing is roughly equivalent to that of both Lyft and Uber, so will consumers pay the same price for slower rides? Unlikely.  According to reporters who covered the launch, Waymo One’s cars were more cautious than the average vehicle on the road and, while some reporters noticed a marked improvement from rides in previous prototypes, others were struck by their strange and jerky behavior. While ARK forecasts that an autonomous taxi could be priced profitably at just 26 cents per mile, Waymo will need to remove the test drivers from its vehicles to reach this price point.[1] All in all, Waymo's commercial launch seems to have been disappointing.

 

Waymo could be taking a cautious approach to Waymo One’s commercial launch for several reasons. First, its artificial intelligence process could be more deterministic than probabilistic,[2] as discussed in our post last week. Second, Waymo’s autonomous vehicle prototypes probably have to jump through regulatory hoops. By contrast, Tesla collects data from thousands of its customers’ vehicles to test and validate new Autopilot features and could be collecting enough information to prove to regulators that its vehicles would be safer without drivers.   

 

ARK estimates that the autonomous mobility-as-a-service market should be valued at roughly $2 trillion and, as companies recognize the magnitude of this opportunity, the fight to prevail could become fierce.

 

[1] Source: ARK Investment Management LLC. Note that this is an updated forecast and is lower than our previous estimate of 35 cents per mile. ARK assumes human remote operators help the vehicles in rare times of need and this is included in our price estimates.

[2] For reference: https://www.quora.com/What-is-the-difference-between-probabilistic-and-deterministic-models. As well as ARK’s last newsletter, ARK Disrupt Issue 152.

 

 

Amazon Makes A Move into Space 

Follow Sam on Twitter @skorusARK

 

In a deluge of announcements from AWS re:Invent last week, one that the general media seemingly missed was Amazon’s partnership with Lockheed Martin to provide low-cost infrastructure for satellite startups. Also in this realm, a few months ago Amazon announced a partnership with Iridium to develop a satellite-based network for Internet of Things applications. The partnership with Lockheed Martin should enhance Amazon’s ecosystem in space by cutting one of the major costs for satellite companies. In addition to the cost of building satellites and launching rockets, companies need to build or lease ground antennae to communicate with satellites. Now, Amazon will turn a capital cost into a “pay-as-you-go” operating cost. Integrating with Amazon Web Services (AWS) also should help startups manage and analyze data from the satellites. Clearly influencing Amazon’s move into space is Blue Origin, an aerospace company owned by Jeff Bezos.


ARK's statements are not an endorsement of any company or a recommendation to buy, sell or hold any security. For a list of all purchases and sales made by ARK for client accounts during the past year that could be considered by the SEC as recommendations, click here. It should not be assumed that recommendations made in the future will be profitable or will equal the performance of the securities in this list. For full disclosures, click here.


 

 

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