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.
“3 observations and a chart” on the latest in the digital assets sector
BTC up 68%, ETH up 59% and BGCI up 57% 1Q24 – builds upon 157%, 92% and 139% returns in 2023 The digital asset sector was broadly higher in a very strong first quarter of 2024. Bitcoin was up 68%, ETH was up 59% and the Bloomberg Galaxy Crypto Index (BCGI), a market capitalization-weighted index that tracks the performance of the largest digital assets trade in USD, was up 57% in 1Q24. This follows a strong 2023 where BTC, ETH and the BGCI were up 157%, 92% and 139%, respectively. We think we are in the midst of the next bull phase in the digital assets and blockchain sector. We think that the altcoin market is poised for tremendous growth around digital asset infrastructure and use case-driven protocols and could present an attractive investment opportunity over the next 18 months.
Bitcoin use cases developing beyond store of value – potential to unlock utility of $1.25T asset Bitcoin is widely considered to be “digital gold”; a digital store of value. However, there is renewed enthusiasm about broader uses for the oldest and largest digital asset by market capitalization. Bitcoin Layer-2 solutions like Stacks (STX; +49% YTD) bring smart contract programmability and increased speed to the Bitcoin ecosystem. Such improvements are expected to lead to decentralized financial applications (DeFi) built on Bitcoin that unlock financial use cases and yield generation for the hundreds of billions of
dollars of Bitcoin that is essentially dormant. Similarly, Runes is a new protocol launched in April 2024 that creates fungible tokens on Bitcoin. We highlight innovation that builds on and potentially unlocks additional value in the most secure and largest blockchain network today. BTC is becoming a foundational technology platform for the trustless financial system it was originally envisioned to be.
Progress on US regulatory front – US Senators Lummis and Gillibrand introduce new bipartisan stablecoin legislation Senators Cynthia Lummis (R-Wyoming) and Kirsten Gillibrand (D-New York) proposed new bipartisan crypto legislation seeking to create a regulatory framework for payment stablecoins in the US. The proposed bill would protect consumers by requiring that all stablecoins are fully backed 1:1 by reserve assets like US dollars or equivalently-valued US treasury bonds. It also bans the use of algorithmic
stablecoins that are typically undercollateralized and maintain their value through algorithmic mechanisms. Senate Democrats expressed openness to approving the bipartisan bill and House Financial Services Chair Patrick McHenry was optimistic in the House having had a stablecoin bill advance out of committee last year. We note the US progress on crypto-legislation and think that the narrowly tailored bill focused on stablecoins would be a very positive first step that could “grease the wheels” toward a
more comprehensive and competitive regulatory regime in the US after the 2024 election.
Chart of the Month
Combined Market Cap of Top 3 Stablecoins rise to record $146 billion – continued expansion in liquidity is a positive sign for the crypto market
Tweet of the Month
Morgan Stanley is latest financial firm to add BTC exposure to a number of fund
allocations
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
