In the Arena | August 1, 2023
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.
Crypto Company Ripple wins (in part) lawsuit with SEC – This is a big deal!
On July 13, a US federal judge ruled for the first time in favor of a cryptocurrency company that certain digital assets fell outside of US securities laws. Ripple’s XRP token is a digital asset designed to be used for international payments and currency exchange. The court ruled, in part, that Ripple’s XRP token “is not in and of itself a ‘contract, transaction, or scheme’ that embodies the Howey requirements of an investment contact” as it pertained to token sales by Ripple and others on centralized digital asset exchanges and in distributions such as payments to employees or technology accelerators. Accordingly,
exchanges and in distributions such as payments to employees or technology accelerators. Accordingly, in such circumstances the XRP token is not a security under US securities laws. XRP rallied significantly upon the ruling, trading up 75%.
We think that this decision is a big deal in at least two regards. First, it laid out a pathway for altcoins to be distributed and traded without being deemed a “security” under US law. Second, as we predicted in an earlier newsletter, the SEC lost a significant ruling in its enforcement crusade against the digital asset industry. We believe that judicial checks on SEC enforcement actions will accelerate thoughtful and comprehensive legislative solutions in the United States (see below).
“Digital assets can revolutionize finance” – Larry Fink, CEO of BlackRock, in interview with FOX Business
We noted last month that BlackRock filed for a spot Bitcoin ETF with the SEC and highlighted the institutional endorsement of Bitcoin by the largest asset manager in the world. Larry Fink buttressed his endorsement of digital assets in an interview with Fox Business where he stated that “digital assets can revolutionize finance”. Fink acknowledged a personal shift from initial skepticism on the asset class. He declared that “the underlying technology is fantastic… the blockchain will help you accelerate the declared that “the underlying technology is fantastic… the blockchain will help you accelerate the
processes of transactions; if you have a pure blockchain, you have knowledge of who the buyers and sellers are, you don’t need custodians anymore”. We highlight the continuing endorsement of the financial and commercial applicability of digital asset and blockchain technology by incumbent financial institutions. Moreover, we note the ongoing shift from early skeptics as use case viability takes hold.
Crypto bill passes congressional committee – legislation moving forward in the US
A bipartisan bill aimed at creating a regulatory framework for digital assets in the United States cleared its first hurdle by passing out of the House Financial Services Committee in a 35-15 vote that included some Democratic support. The bill would define when a digital asset is a security or a commodity and expand CFTC oversight of the crypto industry, while narrowing the SEC’s remit. Republicans and Democrats are also reportedly “very close” to agreeing on separate stablecoin legislation. While slow moving, Congress seems to be acknowledging that digital assets will play an important role in the economy going forward and that the US risks falling behind other jurisdictions without a clear regulatory framework.
Chart (Image) 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