“That’s Our Two Satoshis” - Green Shoots in TradFi Adoption of Blockchain

Jeff Dorman, CFA
Jul 31, 2023

Thats Our 2 Satoshis Logo

What happened this week in the Crypto markets?
Written by Rayne Steinberg, CEO of Arca 
I am filling in for our Chief Investment Officer, Jeff Dorman, this week. In my seat as CEO, I spend a lot less time focused on the markets and most of the time focused on interacting with our clients, partners, and other participants in the blockchain ecosystem. I want to share what I’ve learned from these conversations and provide some perspective. As you are all aware, this has been an incredibly challenging time for our industry, but there may be signs that this period is coming to an end and that we’ll finally see the green shoots of spring.
How Winter Came
It may be helpful to take a minute to revisit our descent into “crypto winter”. I know this is painful, but taking a pause to look back can be really helpful and constructive. First, it is important to realize that the crypto market was not alone in how bad 2022 was for risk assets and we can pinpoint the true start of the crypto winter to when the Fed raised rates in May 2022. 
Source: Fund Monitors 
This resulted in a steep correction in risk assets, and crypto being the riskiest of assets, had the steepest of corrections. This event was followed by a string of high-publicity failures in digital assets.
This included the collapse of TerraUSD and the subsequent failure of Luna. This served as the catalyst of a string of high-profile bankruptcies, including Celsius, Three Arrows Capital, and Voyager. All of these culminated in the fraud of Sam Bandkman-Fried and the collapse of FTX.
Not unsurprisingly, all of these unwinds happened at once. When the Fed turned off the “free money machine”, money started flowing out of crypto. This situation brings to mind the famous Warren Buffet quote: “Only when the tide goes out do you learn who has been swimming naked.” The only problem with crypto was that it appeared we were at a nude beach-  but just didn't know it.
The FTX collapse was different than any previous failure because it involved outright fraud.  This sent a chilling effect through the ecosystem that did not just stop investment into the space, but a suspension of service providers and almost all activity from the traditional world. Or so it seemed.
Through the entire “collapse”, traditional firms continued to work on their blockchain offerings- they just did so quietly.
Here is a sampling of the projects that were being worked on in the digital securities space:
Even after the collapse of FTX, traditional financial companies forged ahead. But yet again, another chilling effect occurred: the perceived hostility of the U.S. regulatory environment increased. The SEC brought several high-profile regulatory actions against crypto companies and the narrative that the U.S. was not open for crypto business began to take hold. This feeling would manifest itself in calls with institutional allocators who wondered how digital assets would survive in the U.S. Many digital asset companies started to pivot from the U.S. to other jurisdictions.
And then, everything changed. Blackrock filed for a Bitcoin ETF. The most amazing part of this filing is that it completely changed the perception of the space, but very little changed in reality.  Blackrock did not receive an exemption and has, in fact, had to refile their application. But now, it is widely interpreted that digital assets are not going to be regulated out of existence, but instead just be regulated. This was likely going to be the outcome all along.
But to be regulated, you need to follow rules, and this has been a challenge for participants from digital assets. What we are seeing now is that a premium is being placed on those who have followed the rules and continue to do so.  Traditional financial service players, whether they are asset managers, investors, or fiduciaries, are trying to work with teams and partners of the highest quality.
This is great news for those doing it right who have not only bathing suits but suspenders and belts.
Spring Arrives
This burgeoning of blockchain technology within traditional financial service companies symbolizes the emergence of the first green shoots of spring following a long winter. Just as challenges like the FTX fraud have cast frosty shadows, emphasizing the pitfalls and summoning greater regulatory vigilance, these harsh conditions have not dissuaded these institutions from tilling the fertile ground of this transformative technology.
As financial titans like BlackRock sow the seeds of blockchain into their offerings, we can anticipate a quickening in the growth of blockchain adoption. This unfolding trend highlights the urgency of a sturdy regulatory trellis, one that balances the innovation of blockchain with the necessary support structure for investor protection and market stability.
Despite the deep and harsh winter, the increased institutional adoption of blockchain technology heralds the arrival of a vibrant spring in traditional financial services. It offers an unprecedented bloom of transparency, efficiency, and security. The inevitable transformation stands to rejuvenate the landscape of the industry for the better, initiating a new epoch of financial services that can nurture a greater sense of trust, inclusivity, and resilience.


And That’s Our Two Satoshis!
Thanks for reading everyone! Questions or comments, just let us know.

The Arca Portfolio Management Team
Jeff Dorman, CFA - Chief Investment Officer
Michael Dershewitz - Chief Operating Officer
Katie Talati - Director of Research
Sasha Fleyshman - Portfolio Manager
David Nage - Portfolio Manager
Wes Hansen - Director of Trading and Operations
Michal Benedykcinski - Senior Vice President, Research
Nick Hotz, CFA - Vice President, Research
Kyle Doane - Vice President, Trading
Robert Valdes-Rodriguez, CFA- Vice President, Research
Alex Woodard - Associate, Research
Christopher Macpherson - Research Analyst
Andrew Masotti - Associate, Trading and Operations
To learn more or talk to us about investing in digital assets and cryptocurrency
call us now at (424) 289-8068.

Subscribe For the Latest Blockchain News & Analysis



Disclaimer: This commentary is provided as general information only and is in no way intended as investment advice, investment research, legal advice, tax advice, a research report, or a recommendation. Any decision to invest or take any other action with respect to any investments discussed in this commentary may involve risks not discussed, and therefore, such decisions should not be based solely on the information contained in this document. Please consult your own financial/legal/tax professional.

Statements in this communication may include forward-looking information and/or may be based on various assumptions. The forward-looking statements and other views or opinions expressed are those of the author, and are made as of the date of this publication. Actual future results or occurrences may differ significantly from those anticipated and there is no guarantee that any particular outcome will come to pass. The statements made herein are subject to change at any time. Arca disclaims any obligation to update or revise any statements or views expressed herein. Past performance is not a guarantee of future results and there can be no assurance that any future results will be realized. Some or all of the information provided herein may be or be based on statements of opinion. In addition, certain information provided herein may be based on third-party sources, which is believed to be accurate, but has not been independently verified. Arca and/or certain of its affiliates and/or clients may now, or in the future, hold a financial interest in investments that are the same as or substantially similar to the investments discussed in this commentary. No claims are made as to the profitability of such financial interests, now, in the past or in the future and Arca and/or its clients may sell such financial interests at any time. The information provided herein is not intended to be, nor should it be construed as an offer to sell or a solicitation of any offer to buy any securities, or a solicitation to provide investment advisory services.