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  • Writer's pictureMichael Schwartz

In the Arena | February 1, 2024



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.

 

BTC ETF approved and launched – milestone for industry and roaring debut

On January 10, 2024, the SEC approved the listing and trading of a number of spot Bitcoin

exchange-traded products. Within a week, BTC became the second biggest ETF commodity in the US, behind only gold and surpassing silver in the process. BlackRock’s ETF accrued over $1B of inflows in the first week of trading, followed by Fidelity’s $880mm. Overall, there was $10B of volume in the first three days of trading. To put this in context: there were 500 ETFs launched in 2023 which did a combined $450mm of volume over the entire year, with the best one doing $45mm. While the price of BTC has fallen over the ensuing weeks – largely due to a combination of “selling the news” profit-taking, net

outflows from the now-liquid and higher cost Grayscale GBTC product and reported selling by the FTX estate to create liquidity – we maintain that the ease of gaining exposure to BTC through an exchange traded product is an important positive catalyst for the digital asset sector, expanding BTC’s accessibility to a wider audience in a more regulated and simpler manner.


BlackRock reiterates positive expectations on the long-term impact of digital assets on finance – opportunity to invest in next generation financial infrastructure

We thought it important to highlight the statement by BlackRock CEO Larry Fink to CNBC after the launch of BlackRock’s BTC ETF on his expectations for the long term impact of digital assets on the financial system. Fink stated, “I think ETFs are step one in the technological revolution in the financial markets. Step two is going to be the tokenization of every financial asset…” We agree that digital asset and blockchain technology will have a disruptive impact on traditional finance; ultimately blockchain-based finance and traditional finance will simply meld into the next generation of finance. Digital asset markets provide the opportunity to invest in that infrastructure.


Stablecoin issuer Circle files for IPO in the US – will offer direct exposure to “killer use case” Circle, the issuer of the US-dollar pegged USDC stablecoin (with almost $26B in circulation), whose early investors include Goldman Sachs, General Catalyst Partners, BlackRock, Fidelity, and Marshall Wace LLP, filed a draft registration statement with the SEC to go public. Stablecoins are digital assets pegged to another asset class such as a fiat currency (like the US dollar) with the goal of maintaining a stable value. Stablecoins can be moved around the world on blockchain rails faster and cheaper than moving money

using traditional banking services. Stablecoins ostensibly provide basic dollar-based financial services and access to the US dollar to almost anyone in the world, including the unbanked/under-banked and those stuck in high inflation currencies/economies. A publicly traded Circle provides another traditional direct investment opportunity for investors to gain exposure to the growing digital asset sector. Importantly, it provides access to one of the most significant and mature use cases of digital asset technology to date. We note that there are currently ~$130 billion of stablecoins in circulation and, in 2022, more

than $11 trillion worth of transactions were settled on public blockchains (compared to ~$11.6 trillion settled on the Visa network).


Chart of the Month


From a post on X highlighting a signal that was the start of prior bull markets in altcoins:



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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