“3 observations and a chart” on the latest in the digital assets sector
The time is now…and you haven’t missed it
This month there really is only one relevant observation on the latest in the digital assets sector: “The time is now…and you haven't missed it”
The time is now…and you haven't missed it 1 – Massive tailwinds for Bitcoin
Since the US presidential election, Bitcoin has realized new all-time highs, approaching $100,000. Yet, numerous tailwinds remain for continued global adoption of Bitcoin as a digital store of value and price appreciation. These include the prospect of the US establishing a Bitcoin reserve (suggested by President Trump during the campaign and proposed by Senator Cynthia Lummis in the Bitcoin Act), other nations following suit in response to a US strategic Bitcoin reserve (Brazil recently proposed Bitcoin reserve legislation), US states allocating a portion of state treasuries to Bitcoin (proposed Bitcoin Rights Act in Pennsylvania would allocate up to 10% of PA’s general funds to Bitcoin), corporations allocating a portion of their treasuries to Bitcoin (Microstrategy, Semler Scientific and others), and wealth advisors adding 1%+ of Bitcoin to standard portfolio allocations. These factors individually and collectively will drive significant demand for a scarce resource. For reference, if Bitcoin were to capture half of the current market capitalization of gold, the most common store of value it is compared to, Bitcoin would be at $500,000. Simple supply and demand dynamics are tailwinds for Bitcoin and you have not missed it…
The time is now…and you haven't missed it 2 – Massive tailwinds for regulatory clarity in the United States
Regulatory uncertainty is often the highest ranked factor (typically cited by more than 60% of survey respondents) giving investors and institutions pause on investing in or engaging with the digital assets sector. The election of President Trump has ushered in a new favorable environment for digital assets that will allow the market and technology to grow and capital to flow into the sector. President Trump has promised that the US will be the center of innovation in blockchain and crypto assets. He has appointed a number of cabinet members who are publicly pro-crypto, including Scott Bessent at Treasury and Howard Lutnick at Commerce. His transition team is reported to be putting together a Presidential Crypto/Blockchain Advisory Council and appointing a “Crypto Czar” to lead that effort. There are more than 290 bipartisan members of the newly elected Congress considered pro-crypto and supportive of market structure legislation like the bipartisan FIT21 Bill passed in the House of Representatives in May 2024, stablecoin legislation like the bipartisan proposal of Senators Lummis (R-WY) and Gillibrand (D-NY) in the Senate and the repeal of restrictive administrative edicts like the SAB 121 SEC custody rule that limits banks from holding digital assets. New leadership is expected at the SEC (Chairman Gary Gensler has announced that he will resign on January 20, 2025) that is not only expected to end the pattern of regulation by enforcement action and lawsuit, but will help create a regulatory framework for digital assets. Regulatory clarity in the US is coming and will open the digital assets and blockchain sector to the deepest and most robust capital, business and consumer markets in the world and you have not missed it…
The time is now…and you haven't missed it 3 – Regulatory clarity and institutional engagement are massive tailwinds for the altcoin universe
Regulatory clarity and institutional engagement will bring capital and new blockchain applications. Blockchain-based solutions that are faster, cheaper and more effective than existing analogs will disrupt trillion dollar markets. There is only ~$780 billion of market capitalization in these potentially disruptive companies, on the same order as a single company like Visa ($609 billion). There is significant asymmetric upside should these early stage companies disrupt trillion dollar markets and capture significant portions of the market capitalizations of the technology sector ($21.41T), financial services sector ($8T) and banking sector ($6.39T). We do not think people are bullish enough on the asymmetric upside upon commercial success of blockchain technology and you have not missed it…
Chart of the Month – Simple Investment Thesis Equation from “Revisiting The ‘Crypto Investment Opportunity’ — Liquid Hedge Funds Provide Compelling Exposure to the Sector”
Video of the Month – Michael Saylor at the Cantor Fitzgerald Digital Asset Conference, November 2024 – "Bitcoin, The Red Wave, and The Crypto Renaissance”
We encourage you to watch the video linked above in which Michael Saylor, Executive Chairman of Microstrategy, lays out his thoughts on “Bitcoin as Digital Capital” and “The Crypto Renaissance” of the broader digital assets sector. It is one of the notable presentations where Saylor lays out the investment case for both Bitcoin and the altcoin universe.
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
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.
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