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  • Writer's pictureMichael Schwartz

In the Arena | June 1, 2024



“3 observations and a chart” on the latest in the digital assets sector


Major crypto regulatory progress in the US #1 – SEC approves ETH ETF

On May 23, the SEC, in an abrupt and unexpected turnaround, approved the applications of 8 issuers to list and trade spot Ether (ETH) exchange traded products. The issuers include BlackRock, Fidelity, Bitwise, VanEck and Grayscale. ETH ETFs will begin trading in a few weeks upon final clearance of S-1 registration statements. The price of ETH spiked more than 20% over the course of the week, from under $3100 to over $3900. We highlight the significant policy shift of the SEC which may portend continued mainstream investment in the digital asset ecosystem.


Major crypto regulatory progress in the US #2 – Bipartisan crypto legislation moving through Congress

In another unexpected shift, on May 22, the US House of Representatives passed the first

comprehensive digital asset market structure bill, the Financial Innovation and Technology for the 21st Century Act (FIT21), in a 279-136 bipartisan vote that included 71 Democrats (including Nancy Pelosi). FIT21 addresses the unique decentralized structure of digital assets and makes the CFTC the primary regulator of digital assets. This comes on the heels of the House and Senate passing bipartisan legislation that repealed SEC Staff Accounting Bulletin 121 (SAB 121), a controversial SEC accounting rule that imposed burdensome capital requirements on crypto custodians. The Senate bipartisan 60-38 approval of the SAB 121 repeal included Senate Leader Chuck Shumer (D-NY) voting in favor of the bill despite the

threat of a presidential veto. Perhaps the most poignant statement evidencing the regulatory shift in the US cameexperts.bitwiseinvestments.com from the White House: “The Administration is eager to work with Congress to ensure a comprehensive and balanced regulatory framework for digital assets, building on existing authorities, which will promote the responsible development of digital assets and payment innovation and help reinforce United States leadership in the global financial system.”


Quarterly 13F’s show widespread and growing institutional exposure to digital assets – RIAs, Banks, Hedge Funds and US State Funds report exposure largely through BTC ETFs

First quarter 13F filings for firms with more than $100mm in investments revealed widespread exposure to digital assets among institutional money managers. In a blog post, Bitwise CIO Matt Hougan noted that 563 professional investment firms reported owning $3.5billion worth of Bitcoin ETFs as of May 9. These firms include Registered Investment Advisors (RIAs) like Hightower Advisors, the 2nd largest RIA in the US, and Cambridge Investment Research, which has more than $170 billion in assets under advisement. Hedge funds Bracebridge Capital and Millennium Management and Morgan Stanley, JPMorgan and Wells Fargo reported exposure. The State of Wisconsin Investment Board reported

investments in BTC ETFs and a number of digital asset-related stocks like Coinbase, Microstrategy and several BTC miners. We continue to believe that digital assets will become a standard part of institutional allocation models and heightened demand will drive prices higher. We also note the speed in which institutional investors began to allocate to the sector, with all of the foregoing activity having happened in the first quarter of 2024 after SEC approval of the BTC ETF products.


Chart(s) of the Month


You’re NOT too late . . . digital assets still a fraction of target addressable markets





Chart(s) of the Month #2

It's common for BTC to have multiple 20% drawdowns in bull runs, but the

overall trend is most important . . .



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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