“3 observations and a chart” on the latest in the digital assets sector
More crypto companies move toward IPOs – increasingly favorable environment for public listings
Growing institutional adoption and a more balanced approach from the SEC are creating a favorable environment for digital assets companies to go public. Among those considering IPOs are Circle, the stablecoin company behind $USDC, Kraken, the largest centralized crypto exchange in Europe, Bullish Global, a crypto exchange backed by Peter Thiel, BitGo, a crypto custody firm backed by Goldman Sachs, Gemini, the exchange founded by the Winklevoss twins, and Ripple, a blockchain based global payments provider. Another, Blockchain.com, a digital assets exchange, recently added a number of senior executives with traditional capital markets experience, including a new CFO from Goldman Sachs and
COO from Point72. We highlight the continued normalization around the promise of blockchain and digital assets technology as exemplified by the possibility of more publicly traded companies in the sector.
DeFi activity demonstrating financial use cases for blockchain
Despite a market pullback since the beginning of the year, activity on decentralized exchanges (DEXs) continues to quietly increase highlighting the growing possibilities for decentralized finance (DeFi) protocols. Technological advancements in liquid staking (pledging digital assets to secure blockchains in exchange for yield on digital asset holdings) and re-staking (using already staked tokens to secure other networks and earn additional yield) make DEXs attractive venues for trading activity. Total DeFi fees increased 141% QoQ in the fourth quarter of 2024, to $2.82B. Total DeFi volumes reached $1T in 4Q24
(105% QoQ). There is an expectation that regulatory clarity in the US will lead to new tokenized assets being deposited into existing DeFi liquidity pools and growing fees. Many also expect that fees will be shared with token holders in a new regulatory regime and drive up the value of DeFi tokens. We highlight the promise of more inclusive and democratized financial markets that eliminate traditional intermediaries through smart contracts and open source protocols.
SEC continues positive shift on digital assets sector – crypto unit recalibrates focus on fraud
The SEC continues to back away from regulation by enforcement action and instead take a more positive and constructive approach to the digital assets sector. It recently re-purposed, re-named and downsized its crypto enforcement unit. The revamped “Cyber and Emerging Technologies Unit” will comprise approximately 30 fraud specialists to “root out those seeking to misuse innovation to harm investors and diminishing confidence in new technologies.” In addition, the SEC dropped its lawsuits against Coinbase and Robinhood. We think this more balanced approach to regulation should give investors enhanced confidence to engage with the digital assets sector as the SEC facilitates capital formation and fosters innovation in emerging technologies while protecting investors from unlawful uses of blockchain and fraud.
Chart of the Month – Global Liquidity Cycles and Bitcoin Price
Bitcoin price correlated to global liquidity and M2 poised for breakout similar to prior cycles.
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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