In the Arena | April 1, 2023
Updated: Jun 1
Arena Digital Capital Management was founded in January 2022 by three experienced traditional finance hedge fund professionals who have been deploying personal capital in the digital asset ecosystem since 2018. The team has managed billions of dollars of capital for high net worth individuals, family offices, and institutions ranging from pension plans and endowments to sovereign wealth funds. We have worked closely with institutional consultants, RIAs, and other advisors in serving their clients.
In May 2022 we launched Arena Digital Capital Partners, with the goal of providing a multi-strategy investment vehicle to access the digital asset ecosystem. Our mandate is to offer broad exposure across the growing digital asset and blockchain sector with an appropriate level of diversification, professional oversight, and manager selection. Our collection of skill sets and our history in the business allows us to understand, assess, and engage with the practitioners of this nascent asset class with a level of diligence required to be responsible stewards of capital. We are happy to periodically share our observations with you.
Bitcoin is Digital Gold
Bitcoin has acted as a safe haven asset / store of value over the last several weeks in reaction to the emerging global banking crisis. Demand for more transparent, auditable and decentralized financial services has increased in light of that stress, highlighting the store of value use case for Bitcoin. Bitcoin is currently trading around $28,000, its highest levels since June 2022. Since the closure of Silicon Valley Bank on March 10, Bitcoin is up more than 39% and the number of addresses holding more than $100 of Bitcoin has increased by more than 1.5 million. The correlation of Bitcoin to gold has increased while the correlation to risk assets like the S&P 500 has decreased. Bitcoin is a solution to the central points of failure, opacity and regulatory lapses in the traditional financial system and we believe will play a role as the global financial system evolves.
Regulation – Recent US “regulation by enforcement action” will not kill blockchain
The SEC, CFTC and banking regulators are clamoring for regulatory control and attempting to stake out territory, largely through regulation by enforcement action. Recent enforcement efforts call into question whether the US is actively trying to choke-off the use and development of digital asset and blockchain technology through these enforcement “end-runs”. We believe that actual thoughtful and comprehensive legislation is coming but is not imminent. It will take time to procure and even longer to implement. Such regulation will be positive for the industry and facilitate mass institutional engagement. That said, we believe that the risk that digital or “crypto” assets are outlawed in the US has passed. We
also do not think innovation or value creation will stop in the face of the current “enforcement action” regime.
National Security Issue
Further to the observation above on regulation, we also think that it is of significant importance to the national security of the United States to lead on digital asset innovation. China is driving digitization and tokenization innovation in their payment and credit markets. China will use this technological shift as an opportunity to extend the reach and influence of the yuan in currency and credit markets. The US will benefit from modernizing current payment and securities markets and remaining the dominant financial system for global trade. We believe that the US will come to see the importance of leading the digital
asset and blockchain technological renaissance and ultimately be supportive of it on, among other reasons, national security grounds.
We note one well-researched and well-articulated version of this argument was presented at one of our manager’s monthly meetings by Major Jason Lowery, an active-duty US Space Force astronautical engineer and US National Defense Fellow. Major Lowery provided a synopsis of his most recent book, Softwar: A Novel Theory on Power Projection and the National Strategic Significance of Bitcoin. (https://www.amazon.com/Softwar-Projection-National-Strategic-Significance/dp/B0BW358F37)
Chart of the Month
Arena Digital Capital Partners is a liquid evergreen fund open to monthly subscriptions. We are always happy to discuss further with you or investors you think may have an interest in the sector. Please reach out to Bill Cline at firstname.lastname@example.org.
The Arena Digital Capital Management Team
Michael Schwartz, Michael Prober & William Cline