Michael Arrington's Next Act: What's He Doing Now?

Michael Arrington’s Reinvention: From TechCrunch to Full-Time Crypto Investor

As many long-term followers of TechCrunch are aware, Michael Arrington was instrumental in the founding of both TechCrunch and Crunchbase. He also established the venture fund, CrunchFund, which was subsequently rebranded as Tuesday Capital. However, in 2017, Arrington signaled a significant career shift, dedicating himself entirely to cryptocurrency investment. Despite the inherent market fluctuations, he remains committed to this path, as he expressed during a recent interview from his new base in Miami: “I enjoy reinventing myself, and I believe more individuals should embrace that approach.”

A New Fund and a Growing Firm

Following the announcement of a new fund last month, we connected with Arrington to gain insights into the hedge fund firm he’s been developing over the past several years. This firm includes Heather Harde, a longtime business partner; Ron Palmeri, an experienced investor and entrepreneur; and the Mansor brothers, Ninor and Ninos, whose crypto company merged with Arrington’s Arrington XRP Capital in 2019.

The following is an edited transcript of our conversation, condensed for brevity and clarity. The complete interview can be accessed here.

Miami Calling: The Reasons for the Move

TC: What prompted your recent relocation to Miami?

MA: My first visit to Miami in over two decades occurred earlier this year, purely for leisure. It coincided with a period where I was seeking more social interaction after the restrictions of COVID-19. The winter climate was also a significant draw, particularly during my February visit. We quickly developed a fondness for the city and connected with the mayor and other local figures. Many of my acquaintances, especially those from New York and San Francisco, had already made the move, creating a welcoming atmosphere.

The city’s governance appears genuinely concerned with the well-being of its residents, striving to create a positive environment. After a couple of house-hunting trips, we decided to relocate.

A Budding Tech Hub?

TC: With several venture firms now based in Miami, is a new “Sand Hill Road” emerging?

MA: From my observations, Miami is currently divided into three distinct areas. Downtown Miami serves as the central business district. South of downtown lies a more suburban area with schools, where we now reside. Finally, Miami Beach is the hub for entertainment and nightlife.

Entrepreneurs seeking to establish themselves tend to concentrate downtown. Wealthier entrepreneurs are often found in Miami Beach, while families with children generally prefer the southern areas.

Networking and the Crypto Landscape

TC: How does the experience of meeting with founders in Miami compare to that in California?

MA: Given my current focus on crypto, much of my interaction with founders still occurs via Zoom, spanning Asia, Europe, Russia, and various other locations. However, there are significantly more in-person meetings here. I’ve already attended several events. The atmosphere is reminiscent of Silicon Valley in 2005, when I was launching TechCrunch – a close-knit community where individuals readily assist one another.

A Career of Reinvention

TC: For those unfamiliar with your career trajectory, could you explain your decision to move so decisively into crypto?

MA: I embarked on this path simply because it represented something new, and I enjoy reinventing myself. I believe more people should embrace this practice. Many individuals achieve expertise in a field and then remain confined to it, ceasing to explore new possibilities. Even VCs with substantial wealth often continue along the same path. Once you’ve accumulated significant capital, why not venture into something different?

My career has consistently involved reinvention. TechCrunch itself was a product of this process. Therefore, this transition feels like a natural progression. At 50 years old, I intend to dedicate myself to this endeavor for the foreseeable future, though I remain open to new interests that may arise in the coming years.

The XRP Connection and Fund Structure

TC: Your initial crypto fund had some unique characteristics – it was a hedge fund rather than a venture fund, and it was denominated in XRP, the cryptocurrency created by Ripple Labs. What led you to focus on XRP, and what is your relationship with Ripple?

MA: During my initial exploration of crypto, I engaged in discussions with Brad Garlinghouse, then CEO of Ripple. He mentioned that Ripple had been approached regarding the potential establishment of a venture or hedge fund funded by Ripple. I expressed my interest, and we began exploring the possibility. However, we ultimately determined that it was not feasible due to tax implications.

Ripple holds a substantial amount of XRP and engages in various activities to strengthen the XRP ecosystem. Transferring a significant portion of XRP into a new fund would have triggered a tax-free exchange, but any subsequent investments made by the fund would have been subject to capital gains taxes based on a zero cost basis, resulting in a substantial tax liability.

We then explored partnerships with non-tax foundations. This proved viable, as foundations are exempt from such taxes. Consequently, several Silicon Valley foundations contributed a significant amount of XRP to our fund for our initial closing. This formed the foundation of our fund, and we subsequently attracted other LPs who invested in fiat currency, Bitcoin, or other assets. We are deeply indebted to both Ripple and XRP and have remained steadfastly loyal to them.

Why a Hedge Fund Structure?

TC: Why did you choose to structure the fund as a hedge fund?

MA: We opted for a hedge fund structure to enable the indefinite recycling of capital. We make private investments similar to a venture fund. However, we also maintain a substantial active team based in Asia. In traditional venture funds, selling an asset like Bitcoin results in the proceeds being returned to investors.

While some venture funds can recycle a portion of their capital, and newer crypto funds have expanded this capability, our fund was designed with indefinite recycling from the outset.

The SEC Lawsuit and its Implications

TC: Ripple has been embroiled in a legal battle with the SEC since December, accused of violating federal securities laws. What are your thoughts on this situation?

MA: I find the situation perplexing. The SEC allowed Ripple to operate for half a decade without raising any concerns. It’s unusual that the lawsuit was filed on the last day of Jay Clayton’s tenure as SEC chief. I’m unsure whether this is politically motivated or personal. I have no idea how the case will conclude. The outcome hinges on whether XRP is classified as a security, based on securities laws from the 1940s. Frankly, I believe the entire situation is questionable.

Lessons Learned and Future Outlook

TC: You’ve publicly discussed a challenging year in 2018, with significant losses for your fund during the crypto market collapse. You narrowly avoided a downward spiral. Where have you seen the most success as a crypto investor?

MA: Bitcoin and ETH experienced an 80% decline, while XRP fell by approximately 90%. Our fund experienced a 42% loss in its first year, which was unfavorable. However, we outperformed the market. One of our major LPs reinvested in December 2018, providing an additional $30 million in XRP, which we used to purchase Bitcoin at $3,500. This formed a core Bitcoin holding within our fund that we maintain to this day.

Historically, periods of significant Bitcoin decline have presented excellent buying opportunities, and this pattern is likely to continue. We tend to be bullish during downturns and cautious during rallies. The current market conditions are unclear, but we believe we are in the midst of an uptrend with a temporary pause of 60 to 90 days.

Navigating the Derivatives Market

TC: What factors lead you to believe we are in an uptrend?

MA: We closely monitor the derivatives markets, specifically the long and short positions in perpetual futures contracts for Bitcoin, ETH, and other cryptocurrencies. Currently, we are observing a significant increase in short positions. Historically, such situations have often led to short squeezes, which can drive prices sharply higher. When the market is heavily shorted, we become very bullish, anticipating potential squeezes as liquidations force traders to cover their positions. This dynamic also occurs in reverse, with long squeezes triggering price declines.

Risk Management and Investment Strategy

TC: Are you actively participating in the derivatives markets?

MA: We avoid excessively complex strategies. Many exotic derivatives are traded on unregulated exchanges with substantial counterparty risk. While such bets may be acceptable for smaller amounts, they are not suitable for investments of $30 million to $40 million, which we sometimes make.

TC: Where have you experienced the biggest losses as a crypto investor?

MA: We are making some equity investments, which are comparable to venture investing. However, most of our deals involve purchasing tokens before their release. These token deals tend to mature more rapidly than equity investments. We’ve seen deals achieve 50x returns within a month of investment, but they also tend to fail more quickly. Our losses on the venture side have been smaller than expected, which is concerning, as it may not be sustainable. The primary losses stem from the inherent volatility of the market. Last year, we managed over $1 billion in assets, which has experienced a significant reduction in recent weeks – a natural consequence of crypto’s volatility.

New Funds and Algorand Focus

TC: You have other funds in development, including a recently announced $100 million fund for projects building on the Algorand blockchain.

MA: This fund is currently in its early stages of development.

Why Algorand?

TC: Why are you focusing so heavily on Algorand?

MA: Algorand is a layer-one blockchain, providing the infrastructure for third parties to create new companies and protocols. Its founder, Silvio Micali, is exceptionally brilliant and has developed a network that aims to balance decentralization with transaction speed. We believe he has succeeded.

Addressing Industry Concerns

TC: Dogecoin’s founder, Jackson Palmer, recently published a series of tweets criticizing the crypto industry, accusing it of facilitating tax avoidance and amplifying wealth inequality. Do you agree with his assessment?

MA: I haven’t reviewed the specific tweets, but based on your summary, I don’t entirely disagree. Bitcoin, in particular, is fundamentally anti-statist, seeking to remove control of money from governments in the name of economic freedom. This resonates with my libertarian worldview. However, there are also statists within the crypto space, and tax avoidance is a challenge. As an American, I find it increasingly difficult to avoid crypto taxes and make no attempt to do so. However, many individuals are drawn to crypto solely for financial gain, and that is acceptable. They may not share my political perspective.

While a few billionaires control significant portions of crypto, increased participation is essential to distribute wealth more broadly.

[Note: Arrington’s firm recently published a research report on Algorand. We also discussed a separate “yield fund” he is currently developing. This editor joined TechCrunch in 2015; Arrington departed in 2011 following a disagreement with AOL, which had acquired TechCrunch a year prior.]