Michael Bodley

In a yo-yo of a year for digital asset investment managers, Arca has largely held its ground.&nbsp;&nbsp;



The hedge and venture fund firm, in fact, is in the middle of finalizing a Series B round, according to two sources familiar with the matter. Arca CEO Rayne Steinberg confirmed the fresh capital-raise in an interview with Blockworks, saying it ought to be finalized in the coming months.&nbsp;



That’s not to say it’s been a painless year for the Los Angeles-headquartered operation. There have been a number of headaches, from choppy returns to operational and fundraising pivots.&nbsp;



Case in point: Arca first started outreach for the Series B about a year ago — near the height of the bull market, long before digital assets <a href="https://www.coingecko.com/en/global-charts" target="_blank" rel="noreferrer noopener">lost</a> 70% of their collective market capitalization. 



The firm also booked significant losses in its flagship strategy earlier in 2022, when the top-heavy market’s bottom fell right out on the Terra ecosystem — following the de-pegging of Terra’s stablecoin, UST — as well as the rapid collapse of over-levered crypto lenders, including Celsius and Voyager.&nbsp;



Sources said Arca was hit with fairly minor redemptions. Its liquid products offer monthly subscriptions and redemptions. But savvy repositioning and open lines of communication to limited-partners appear to have prevented a more dire outcome. And, crucially, Arca’s <a href="https://blockworks.co/news/arca-and-deso-foundation-kick-off-new-defi-funds" target="_blank" rel="noreferrer noopener">funds</a> had minimal exposure to FTX, Steinberg said, though he declined to specify an exact figure.&nbsp;



“Our investment mandate is broad, and our buckets are also broad, so those changed in an environment where [assets have become] super-correlated to macro,” Steinberg said.&nbsp;



The Arca head, tasked with heading business development for the Series B, decided to wait it out. The new plan: rejigger classification of the capital— settling on compliance, infrastructure and staffing, in both the parent company and its affiliate startup innovation and advisory division, Arca Labs.



“The environment really changed with Luna and upended it and really changed the makeup of who was going to be in it,” Steinberg said.



Following its seed round, Arca <a href="https://www.prweb.com/releases/digital_asset_management_firm_arca_raises_10_million_in_series_a_funding/prweb17656592.htm" target="_blank" rel="noreferrer noopener">closed</a> a $10-million Series A in January 2021 led by RRE Ventures. The firm likewise then-declined to detail its valuation.



Navigating regulation&nbsp;&nbsp;



Regulators, the <a href="https://blockworks.co/news/sec-grayscale-exploring-bitcoin-trust-options" target="_blank" rel="noreferrer noopener">SEC</a> and the CFTC in <a href="https://blockworks.co/news/cftc-commissioner-ftx-crisis" target="_blank" rel="noreferrer noopener">particular</a>, have scrambled to get a handle on the swiftly changing developments, a push expected to intensify on the <a href="https://blockworks.co/news/new-crypto-friendly-politicians-are-headed-to-washington" target="_blank" rel="noreferrer noopener">outcome</a> of the US’ midterms.&nbsp;



Steinberg welcomes the <a href="https://blockworks.co/news/crypto-industry-must-report-bad-actors" target="_blank" rel="noreferrer noopener">scrutiny</a>. Amping up the financial watchdogs’ powers, while perhaps overdue, ought to weed out an assortment of digital asset bad actors, including fraudsters. New regulation, as well as the potential for <a href="https://blockworks.co/news/crypto-policy-proposals-ok-rep-says" target="_blank" rel="noreferrer noopener">congressional legislation</a>, would give a leg-up to asset managers — including Arca — with robust compliance structures and featuring executives who cut their teeth on Wall Street.&nbsp;



The institutional investment manager&nbsp; — whose limited-partners are predominantly the likes of endowments and pension plans — has historically sourced potential investors from what Steinberg dubbed “the gateway [to] traditional finance.” It’s also important for the startup’s partners to maintain their own distribution channels.



Despite a number of indicators that deep-pocketed TradFi investors are sitting out crypto’s latest volatile session — and some prominent figures, according to industry participants, are pulling out entirely — Steinberg said the vast majority of the Series B’s likely backers have not had much exposure to recent market conditions.&nbsp;



Fending off the bear market



The chief executive declined to disclose the specific investors with Series B commitments, or entities now in the midst of due diligence. But there is some crossover between Arca’s existing limited-partner roster, according to Steinberg, formerly WisdomTree Asset Management’s co-founder.



The Arca co-founder also declined to comment on how much capital the firm is targeting for the venture round, citing the fundraise still being in the works — and would not disclose an approximate new valuation under the same rationale.&nbsp;



Arca’s exact year-to-date showing for its main fund isn’t known, but one source said they were “far outside the norm,” which typically has a “healthy respect for risk.” The team’s portfolio managers clawed back a “good chunk” of those losses in the coming months — and then dipped again as markets were rattled by FTX’s bankruptcy.&nbsp;The fund outperformed spot bitcoin and ether from the start of November through last Friday, however.



The asset manager’s flagship fund employs a global macro approach, utilizing a bottom-up, fundamental technique — pioneered by TradFi stock-pickers and adapted for crypto — to inform its trading. That vehicle, and additional investment products, are now quite overweight cash as market participants parse the likelihood of yet more counterparties having to close up shop before year end.&nbsp;



Steinberg and execs have undertaken a “deep dive” into Arca’s response mechanisms to contain sudden market plunges. The self evaluation has focused on risk, initial counterparty due diligence and regular followup check-ins.&nbsp;



“You can’t get everything right, and if you’re stagnant, you’re [in trouble],” Steinberg said. “What worked yesterday won’t work tomorrow. Even when things go wrong, you’ll have to evaluate them, too.”



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Dodging Worst of FTX, Arca Won’t Stay ‘Stagnant’

Casey Wagner

<div id="highlights-block_614cef611572f" class="highlights">
 <ul>
 <li>Arca Labs, in partnership with Securitize, launched the first ever registered, tokenized US Treasury fund</li>
 <li>Securitize will provide the smart contract and issuance platform behind the Arca US Treasury Fund</li>
 </ul>
 
</div>



Arca’s innovation division Arca Labs has partnered with Securitize to bring the first registered, ‘40 Act, tokenized United States Treasury fund to market, the companies <a href="https://www.globenewswire.com/news-release/2021/09/23/2302202/0/en/Arca-Labs-and-Securitize-Partner-on-Tokenized-Financial-Products-Beginning-with-Arca-U-S-Treasury-Fund.html">announced</a> Thursday.&nbsp;



The Arca US Treasury Fund is structured the same as a mutual fund and meets the same regulatory requirements, but shareholders interact with it through an Ethereum token and share ownership is represented on the blockchain.



Shares will be issued through ArCoin digital asset security tokens, and records of token ownership and history will be maintained off-chain. Securitize will be the fund’s transfer agent and responsible for providing the smart contract and issuance platform behind the fund.&nbsp;



<blockquote class="wp-block-quote is-layout-flow wp-block-quote-is-layout-flow">“We really wanted to create a product that had utility,” said Rayne Steinberg, CEO of Arca. “This serves as something similar to a stable instrument, we say it&#8217;s a low-volatility coin.”&nbsp;</blockquote>



Arca and Securitize, Steinberg said, are prioritizing investors, who have expressed interest in exposure to new blockchain-based investment vehicles, which institutions have largely not been able to deliver.



“We go through FINRA with all of our marketing, like any mutual fund company, and this is a registered investment company so we have to abide by those rules,” Steinberg said. “We can&#8217;t make claims about stability and things like that, so it&#8217;s a low-volatility product, backed by US Treasuries, and when we launched it, you know, the interest rate environment was slightly different.”&nbsp;



Today, 2-year US Treasuries are yielding about 0.24%. The idea behind the fund, Steinberg said, was to provide people that were interested in the blockchain ecosystem with a product that met the highest regulatory standards.&nbsp;



“To get rid of some of the regulatory overhang or confusion around other products that weren&#8217;t out under a federal regulatory body, that was the idea,” he said. “First, this one, which is short-duration US treasuries, but then a structure that could potentially hold many many different types of underlying products.”



Steinberg, who also co-founded exchange-traded fund provider WisdomTree, said that he isn’t sure if Arca would consider launching a cryptocurrency ETF should the structure ever get approved. ETFs, he said, were a step-function of utility for investors over 4pm-close mutual funds. They provide intraday liquidity and tax advantages that were not anticipated when the structure was created in the early 1990s.



<blockquote class="wp-block-quote is-layout-flow wp-block-quote-is-layout-flow">“There would have to be a very good reason for us to see that utility to file an ETF,” Steinberg said. “It&#8217;s very crowded. There&#8217;s like 20 or 30 applications right now, and I think that ETF providers are, well, when you have a hammer, everything looks like a nail.”&nbsp;</blockquote>



The team filed the fund with the US Securities and Exchange Commission in November 2018, but did not receive exemptive relief until mid-2020, Steinberg said, explaining that the regulatory process when it comes to crypto products can be lengthy.&nbsp;



“This is a kind of technology that causes a lot of confusion and stress on the current system,” Steinberg said. “It&#8217;s very unusual for there to be broad access of the populace to securities or things that have securities-like attributes, so, the very nature of blockchain, what it&#8217;s doing, causes some confusion, and this is to be expected.”



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Are you a UK or EU reader that can’t get enough investor-focused content on digital assets?<a target="_blank" href="https://cms.blockworks.co/events/das-london/" rel="noreferrer noopener">Join us</a>&nbsp;in London on November 15th and 16th for the Digital Asset Summit (DAS) London. Use code ARTICLE for £75 off your ticket.&nbsp;<a target="_blank" href="https://cms.blockworks.co/events/das-london/" rel="noreferrer noopener">Buy it now</a>.



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Arca Labs and Securitize Partner on Tokenized US Treasury Fund

Liz Coyne

In the tenth and final episode of Blockworks&#8217; &#8220;<a href="https://www.youtube.com/watch?v=PjCGJTJI8J0&amp;t=5s" target="_blank" rel="noreferrer noopener">Generational Arbitrage</a>,&#8221; host Tyler Neville speaks with Rayne Steinberg, co-founder of WisdomTree with $75 billion of assets under management. 



After leaving WisdomTree in 2011, Rayne went on to co-found Arca in 2018. In three years Arca managed to grow to $400 million in digital assets under management. On this episode, Rayne shares the similarities between the digital asset ecosystem and the early ETF industry, generating alpha in this new asset class, active vs. passive, the problems with ESG investing and the generational divide in society.



They also discuss:



<ul class="wp-block-list"><li>Arca&#8217;s Treasury Fund</li><li>Arca&#8217;s actively managed fund</li><li>Institutional Interest </li><li>The Future of Arca</li><li>Scaling Arca in the digital age</li></ul>



Check out what they had to say in the video below. 👇



<figure class="wp-block-embed is-type-video is-provider-youtube wp-block-embed-youtube wp-embed-aspect-16-9 wp-has-aspect-ratio"><div class="wp-block-embed__wrapper">
<iframe loading="lazy" title="The future of digital asset investing | Rayne Steinberg" width="1024" height="576" src="https://www.youtube.com/embed/PjCGJTJI8J0?start=5&#038;feature=oembed" frameborder="0" allow="accelerometer; autoplay; clipboard-write; encrypted-media; gyroscope; picture-in-picture" allowfullscreen></iframe>
</div></figure>



The social fabric of contemporary American life is tearing itself apart. On &#8220;Generational Arbitrage,&#8221; Tyler Neville, the former author of Blockworks&#8217; smash hit <a href="https://cms.blockworks.co/newsletter/" target="_blank" rel="noreferrer noopener">Daily Newsletter</a>, dug into the institutions whose promises are left unfulfilled. 



While the show run has ended, you can still listen to all 10 episodes in the Blockworks archives on <a href="https://podcasts.apple.com/us/podcast/generational-arbitrage/id1571134391" target="_blank" rel="noreferrer noopener">Apple</a> or <a href="https://open.spotify.com/show/1fPKtTSDvg7xzm8FaSljjL?si=1iHi3qpnSiCb34pwgd5hpQ&amp;dl_branch=1&amp;nd=1" target="_blank" rel="noreferrer noopener">Spotify</a> or watch episodes on <a href="https://www.youtube.com/watch?v=tNe4cMKNEU4" target="_blank" rel="noreferrer noopener">YouTube</a>.