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  • Writer's pictureMichael Schwartz

In the Arena | December 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.

 

Binance survives! – massive settlement with US government but no kill shot

On November 21, 2023, Binance, the largest crypto exchange in the world, agreed to pay a $4.3 billion settlement to the US Department of Justice, Treasury Department and CFTC in connection with criminal and civil charges that it violated US anti-money laundering protections and the Bank Secrecy Act. In addition, Binance founder and CEO, Changpang Zhao, agreed to step down as CEO and pay a $50 million fine. While the $4.3B fine is the 7th largest financial compliance fine in US history, the company appears to have more than enough assets to pay the fine and continue its business. Importantly, the markets took the news in stride; there was no liquidity drain or immediate rush to the exits. We think the Binance settlement clears an important risk from the markets and removes what many had feared was an existential overhang on the crypto sector.


Singapore announces Project Guardian – testing financial use cases with global financial institutions

The Monetary Authority of Singapore (MAS) announced that it is working with a number of global financial institutions to test asset tokenization and other financial use cases for blockchain technology. Through a series of pilot programs, MAS intends to develop the foundational infrastructure for a trusted, open and interoperable ecosystem with regulatory safeguards and controls for the trading of digital assets. Pilot programs include work with Citi, T. Rowe Price, and Fidelity International to develop advanced systems to accurately price and execute two-party digital asset transactions, BNY Mellon and Oversea-Chinese Banking Corporation on cross-border foreign exchange payment solutions, and Ant International on a treasury management solution that allows for real-time clearing and settlement in multiple currencies. We highlight the efforts of governments around the world to embrace blockchain technology and collaborate with policymakers and the financial industry to test the feasibility of financial use cases. Such efforts buttress our belief that blockchain technology will be the future base layer underpinning finance on a global scale.


Blockchain-based gaming startups continue to raise money – Web3.0 gaming a significant use case

Gaming continues to be an attractive use case for blockchain technology. Blockchain-based games, among other things, will allow players to own and trade in-game assets within and across gaming platforms. This Fall, Neon Machine, the developer of a “Call of Duty-like” game called Shrapnel, raised $20 million in Series A financing. The game is expected to include a “Shrapnel Marketplace”, where in-game items will be purchasable and tradable. The Shrapnel development team includes developers of the Halo, Call of Duty, and Star Wars games. Similarly, crypto game Upland raised $7 million in a Series A extension round. Upland is a blockchain-based real estate collecting and trading game with over 3 million

registered players, including 30,000 daily active users, and has partnerships with organizations such as FIFA and the NFL Players Association. We believe that the case for blockchain-based gaming will grow with the quality of the game, and Shrapnel and Upland are examples of such progress.


Notable Press Release – “Kraken continues to fight for its mission and crypto innovation in the United States”


In late November, the SEC filed a complaint against Kraken, the second largest crypto exchange in the United States, alleging that Kraken operates as an unregistered securities exchange, broker, and clearing house. The complaint is quite similar to the one filed by the SEC against Coinbase earlier this year.

Kraken’s response is worth a read:



Chart (Image) of the Month


Dan Morehead, Founder and Managing Partner of Pantera Capital, posted the following on X, including the chart below:


“The price of bitcoin has a pronounced four-year cyclicality. The rhythm is amazingly steady. The rallies are within 23 days of the 1,076-day average bull market (2.95 years). Same tightness on the downside – bear markets end within 24 days of the 382-day average (1.05 years)...”

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 williamc@arenadigital.capital.


Sincerely,


The Arena Digital Capital Management Team

Michael Schwartz, Michael Prober & William Cline

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